Abstract
Growing spatial inequality has led policymakers to enact tax breaks to attract corporate investment and jobs to economically peripheral regions. We demonstrate the importance of multi-plant firms' physical capital structure for the efficacy of place-based policies by studying a bonus depreciation scheme in Japan which altered the relative cost of capital across locations, offering high-tech manufacturers immediate cost deductions from their corporate income tax bill. Combining corporate balance sheets with a registry containing investment by plant location and asset type, we find the policy generated big gains in employment and investment in building construction and in machines at pre-existing production sites, with an implied fiscal cost per job created of $17,000. These responses are driven by more financially constrained firms and firms which rely on costly but long-lived capital inputs like industrial machines. The policy did not generate positive local spillovers to ineligible plants or spillovers through inter-regional trade networks. Plant-level hiring in ineligible areas outstripped that in eligible areas, suggesting firms reallocated funds from the write-offs within their internal network. How multi-plant firms react to spatially targeted tax incentives ultimately depends on their internal network and their composition of intermediate capital inputs used in production.
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