Firm-level additionality effects of investments and employment tax credits in Polish Special Economic Zones

Abstract

ABSTRACT Special Economic Zones (SEZs) have become an increasingly popular instrument of public intervention over the last decades. The additionality effects of the intervention are crucial term of policy evaluation. In the context of the SEZs scheme it allows to determine at the firm-level to what extent the tax credits encourage firms to invest more and employ more than they otherwise would have done. Due to the specific mechanism of granting tax relief to firms within the SEZs scheme in Poland, a generalisation of the difference-in-difference estimator was applied as an estimation method. The main findings of our research looks as follows: first, the regional tax credits for companies operating in SEZs have positive effect on the fixed assets; second, the total regional tax credits (i.e. without distinguishing between employment and investment tax credits) have a much stronger contemporaneous effect on fixed assets than the investment tax credits alone; third, the regional tax credits do not change the company’s behaviour in terms of employment.