HKS Faculty Research Working Paper Series
HKS Working Paper No. RWP14-019
April 2014
Abstract
Large retailers have significant positive spillovers on nearby businesses, and both
private and public mechanisms exist to attract them. We estimate these externalities
using detailed geographic establishment data and exogenous variation from national
chain bankruptcies. We show that local government policy responds to the size of
these spillovers. When political boundaries allow local governments to capture more
of the gains from these large stores, governments are more likely to provide retail
subsidies. However, these public incentives also crowd out private mechanisms that
subsidize these stores and internalize their benefits. On net, we find no evidence that
government subsidies affect the efficiency of these large retailers’ location choice as
measured by the size of the externalities at a given distance, rather than within a
certain border.
Citation
Shoag, Daniel, and Stan Veuger. "Shops and the City: Evidence on Local Externalities and Local Government Policy from Big Box Bankruptcies." HKS Faculty Research Working Paper Series RWP14-019, April 2014.