Question

What are the pluses and minuses of corporate location subsidies? Why do politicians like them so much? Would you be surprised to know that many of the 238 cities bidding for Amazon's HQ2 offered much larger location subsidies than did New York City and Alexandria, Virginia? Explain.

Short answer

The corporate location subsidies have a plus—they act as an incentive for development—and a minus—they are a waste of taxpayers' money.

Politicians like them because it can help them win upcoming elections.

There's no surprise that the other cities might have offered higher corporate location subsidies. Each city will want to have such a giant technological company for faster growth and development.

Step-by-step solution

Comparing the pluses and minuses of corporate location subsidies

The corporate location subsidies bring its pluses and minuses together. The corporate location subsidies catalyze the location's development. The establishment of a company leads to the advancement of technology in the area, the scope for other businesses, more employment opportunities, increased earnings, better physical and social infrastructure, and, thus, overall development of the area.

For example, the establishment of energy company Con Edison in lower Manhattan in 1823 helped New York City to develop. It facilitated the energy needs of the city, so other businesses got encouraged. It also expanded the employment opportunities in the area, and the income of individuals increased.

However, the companies will ultimately set up only in those locations that provide other supporting conditions apart from location subsidies for their business. Factors like availability of inputs, distance from the market, transportation costs, and others also matter when a producer tries to minimize cost and maximize the output.

The companies might choose the location irrespective of the location subsidies. In such cases, corporate location subsidies prove to be a waste of the city government's revenue.

Politicians favor location subsidies 

Politicians favor corporate location subsidies as they bring goodwill to them. Companies coming to their respective cities because of these subsidies foster their development. This influences the decision-making of the locals in favor of the politicians.

These subsidies provide politicians with a campaign plan for the next elections.

Reason why larger location subsidies were offered for Amazon's HQ2

It's no surprise that the cities other than New York and Alexandria offered enormous subsidies for Amazon's HQ2. Amazon's HQ2 can bring exponential growth and development for any region. The growth and development will cater to the benefits of the politicians in that region to get re-elected.