The Impact of State Government Subsidies and Tax Credits in an Emerging Industry: Ethanol Production 1980–2007

This article examines the effects of state economic development incentives in the emerging ethanol industry. We compiled data on ethanol production capacity and subsidies/tax credits for all states for the years 1980–2007, a period that covers the complete emergence of the biofuel industry in the United States. Importantly, this time period was characterized by the passage of several state-level subsidies and tax breaks aimed at increasing ethanol production. Hence, this panel documents a substantial amount of within-state variation in policies from which to identify an effect. We find that some incentives directed at ethanol production have a significant effect on a state’s production capacity.

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