The Political Economy of State Government Subsidy Adoption: The Case of Ethanol


Corresponding author: Mark Skidmore, 208 Agriculture Hall, Michigan State University, East Lansing, MI 48824-1039, USA. E-mail:


In this study, we examine the factors that determine the adoption of state economic development incentives in the ethanol industry. We compile data on the implementation dates for subsidies/tax credits for all states for the years 1984–2007, a period that covers the complete emergence of the biofuel industry in the United States and that was characterized by the passage of numerous state-level subsidies and tax breaks aimed at increasing ethanol production. Using Cox proportional hazard regression analysis, we find that states are more likely to adopt ethanol subsidies when corn production is high, when corn prices are low and gasoline prices are high, when a state is affiliated with the National Corn Growers Association, when a check-off is present, when a state has a high environmental score, and when state government is under the control of Democrats.