Blogging has been light due to vacation, end of semester, and preparing for our second child to arrive (late May…we hope).

I’m trying to wrap up a book project with Eddy Maleksy on governments providing financial incentives to firms.  I took a quick look at the Canadian incentive data.

While some Canadian provinces ban certain types of incentives, our data reveals over 400 incentives given by provinces and cities from January 2010 to April 2013.  The vast majority of these incentives are provided by the two largest provinces, Ontario (170 incentives) and Quebec (147 incentives).  Three of deals top $100 million (Canadian), including $304 million (Canadian) for Shipbuilding in Nova Scotia, $142 million (Canadian) to Toyota’s expansion in Ontario, and $132 million (Canadian) for the upgrading of a paper mill in Quebec.  Unlike many of these U.S. incentives, the majority of Canadian incentives are in the form of subsidized loans.

Interestingly, the pattern of incentives seems related to the electoral calendar.  Quebec’s most recent general election was held on September 2012 after the dissolving of parliament in August 2012.  While there is not direct evidence that the government was providing more generous incentives in the run up to the election, the descriptive data fits this pattern.  While 2012 had a similar number of incentives offered (38 incentives) to 2011 (42 incentives), the size of these incentives increased dramatically, from an average of under $3 million in 2010, under $5 million in 2011, to over $9 million in 2012.  The incentives thus far in 2013 (as of this week) were back to the pre-election levels of just over $5 million.

Perhaps this is just a spurious correlation.  What does the pattern look like in Ontario?  Fortunately for us, Ontario’s general election was held in October 2011, roughly a year earlier than Quebec’s general election.  For Ontario, we find an even clearer pattern, with the government offering many more incentives during their election year (72 incentives) than the year before elections (47 incentives) or the year after the elections (34 incentives).  The size of these incentives is equally striking.  In the year before the general election the average incentive was $1.62 million and $3.16 million after the election.  During the year of the elections the average was over $6 million.  Put another way, Ontario’s total dollars in incentives increased by over 400% during the election year.

Our point general argument is that politicans offer incentives to “claim credit” for investment that was coming to their province anyway.  This is some simple descriptive evidence that is consistent with our theory, although it could be consistent with a couple of alternative theories.  But something fishy is going on during election years.