Peer-reviewed research, scholarly articles, working papers and other important insights by independent researchers
If you’re interested in learning more about what researchers know — or don’t know — about economic development incentives and their impact on our communities, we’ve collected important research here. It includes both landmark older studies as well as a selection of some of the newest work in the field.
This is by no means a comprehensive list, and our hope is that it serves as a starting point for people who are interested in educating themselves further. There’s a huge amount of good work out there we haven’t included, and if you’d like to suggest publications for inclusion on this list, please contact us.
Bradbury, John Charles; Coates, Dennis and Humphreys, Brad R. (2022)
The Impact of Professional Sports Franchises and Venues on Local Economies: A Comprehensive Survey
Journal of Economic Surveys (Forthcoming)
“First, and perhaps most important, nearly all empirical studies find little to no tangible impacts of sports teams and facilities on local economic activity, and the level of venue subsidies typically provided far exceeds any observed economic benefits. In total, the concurrence of research findings demonstrates that sports venues are not an appropriate channel for economic development policy.”
“[E]ven where positive relationships are observed, estimated benefits tend to be insufficient to justify the level of subsidies provided.”
“The scale is tipped so heavily against the desirability of stadium projects in improving resident welfare that additional studies are unlikely to have further influence beyond confirming what is already known to researchers in the field.”
“Overall, consensus findings from economic studies demonstrate that public subsidies to fund sports stadiums and arenas do not pass a cost-benefit test.”
De Simone, Lisa; Lester, Rebecca and Raghunandan, Aneesh (2022)
Tax Subsidy Information and Local Economic Effects
(Forthcoming)
“We examine if the effectiveness of business tax subsidies varies based on whether subsidies are subject to state disclosure laws… We examine both internal disclosure laws, which mandate subsidy reporting by the granting state agency to other state oversight agencies, and external disclosure laws, which mandate reporting to the public. We find positive effects of subsidies on local employment when subsidies are subject to internal disclosure laws; by implementing such regimes, governments could forego 1.2-1.7 subsequent subsidies per county, saving $419.0-$593.5 million in aggregate. In contrast, we observe little effect of external disclosure, which we show is due to governments either substituting to other incentive grants or posting stale information that impedes public monitoring.”
Sobel, Russell S.; Wagner, Gary A. and Calcagno, Peter (2022)
The Political Economy of State Economic Development Incentives: A Case of Rent Extraction
Economics & Politics
“We find that large development incentives create substantial benefits for incumbent politicians in the form of both higher campaign contributions (particularly from business, labor, and construction sectors) and higher margins of victory at election time. Thus, political rent extraction may be the best explanation for the continued existence and popularity of these relatively ineffective incentive programs in states.”
Jensen, Nathan M. and Thrall, Calvin (2021)
Who’s Afraid of Sunlight? Explaining Opposition to Transparency in Economic Development
Business and Politics
“Allowing companies to renegotiate contracts outside of the public eye violates the very sprit of adding performance requirements and performance provisions. This is an important public policy point that we cannot stress enough.”
“[A]lthough clawbacks are touted as holding companies accountable for their promises and protecting the taxpayers from problem economic development deals, our research shows that the amending of contracts, protecting firms from clawbacks is widespread. This not only calls into question the effectiveness of clawbacks but also challenges the claims that governments want to hold firms accountable. The failure of an economic development agreement not only makes a firm look bad, it can open up the government to criticism as well. This points to need to have an independent enforcers of economic development agreements and clear rules on amending contacts.”
Frank, Mary Margaret; Hoopes, Jeffrey L. and Lester, Rebecca (2020)
What Determines Where Opportunity Knocks? Political Affiliation in the Selection of Opportunity Zones
Journal of Public Economics
“We find governors are on average 7.6% more likely to select a census tract as an Opportunity Zone when the tract’s state representative is a member of the governor’s political party. Further, we find that this effect ranges from 0.0% to 25.6% depending on the state-level information channels governors used to select Opportunity Zones, such as engagement of professional advisors and implementation of public comment procedures.”
“[W]e find that greater economic activity occurs only in Opportunity Zones within those states where the formal processes mitigated the role of political affiliation in the selection decision and that the higher activity occurs irrespective of the political affiliation of the tracts within these states. In contrast, we do not observe significant early economic activity in Opportunity Zones, irrespective of political affiliation, in states where the formal processes did not mitigate the political affiliation effect.”
Kim, Donghyuk (2020)
Government Incentives and Firm Location Choices
Iowa State University
“I find that the effect of competition on overall welfare of states and firms is mostly zero, as firm location choices are relatively unresponsive to incentives, which become government transfers. States that are less profitable for firms without incentives tend to have higher valuations for firms but infrequently benefit from competition. My findings are consistent with the view that state government competition using incentives generates large corporate welfare and little allocative efficiency.”
“Firms benefit by having states compete for them and by capturing rents. States, on the other hand, mostly face substantial welfare reduction from paying incentives to immobile firms.”
LaFaive, Michael D.; Devaraj, Srikant and Hicks, Michael (2020)
Economic Development? State Handouts and Jobs: A New Look at the Evidence in Michigan
Mackinac Center for Public Policy
“We find that providing incentives to firms in Michigan lifted both employment and sales at those firms by 7.1% and 9.9%, above their nonincentivized counterparts, respectively. The average incentive amount per job created, however, worked out to be $593,913 per year.”
“Incentives may influence the location of business. Several studies acknowledge they play a role in the decision of firms to locate or expand in a state or sub-state region. But the cost per job of incentivizing business location are often several orders of magnitude higher than the average annual wage of that job.”
Dove, John A. (2020)
Economic Development Incentives: Fostering Productive or Unproductive Entrepreneurship?
Book Chapter, Entrepreneurship and the Market Process
“[A]s economic incentives become more liberal and easier for state governments to extend, they lead to a statistically significant reduction in productive entrepreneurship, an increase in unproductive entrepreneurship, and an overall reduction in net entrepreneurial productivity. “
Slattery, Cailin and Zidar, Owen (2020)
Evaluating State and Local Business Incentives
Journal of Economic Perspectives
“States with higher per capita incentives tend to have higher state corporate tax rates. Recipients of firm-specific incentives are usually large establishments in manufacturing, technology, and high-skilled service industries, and the average discretionary subsidy is $160 million for 1,500 promised jobs. Firms tend to accept subsidy deals from places that are richer, larger, and more urban than the average county, while poor places provide larger incentives and spend more per job.”
“While we find some evidence of direct employment gains from attracting a firm, we do not find strong evidence that firm-specific tax incentives increase broader economic growth at the state and local level.”
“[P]er capita incentive spending increases by more than 20 percent in half of the cases in which it is an election year and the governor is up for reelection versus one-fifth of the cases otherwise.”
McDonald, Bruce III; Decker, John & Johnson, Brad (2020)
You Don’t Always Get What You Want: The Effect of Financial Incentives on State Fiscal Health
Public Administration Review
“While incentives may draw in more economic growth, they also pull resources from the government’s coffers and may commit future funding for public services that benefit the incentivized business.”
“After controlling for the governmental, political, economic, and demographic characteristics of a state, we find that incentives draw resources away from the state. Ultimately, the results show that financial incentives negatively affect the overall fiscal health of a state.”
“Research and development tax credits were shown to have the largest negative effect, followed by investment tax credits and property tax abatements.”
“While financial incentives may have an economic return on investment, they come with a high cost to the state’s financial sustainability. As such, they are a financial tool that should only be used with caution.”
Aobdia, Daniel; Koester, Allison and Petacchi, Reining (2019)
Political Connections and Government-Awarded Economic Incentives: US State-level Evidence
(Forthcoming)
“We find that companies are more likely to receive an incentive award in a politically connected state and this association is stronger when politicians’ motives appear to be self-serving. Although equity investors react more positively to announcements of incentives awarded to politically connected companies, politically connected awards are associated with lower local future economic growth. Our analyses suggest that government incentives awarded to politically connected firms are a less effective allocation of taxpayer funds.”
“A firm is nearly four times more likely to receive an award, and the award is 63 percent larger, when the firm makes campaign contributions to state politicians.”
Bradbury, John Charles (2019)
Film Tax Credits and the Economic Impact of the Film Industry on Georgia’s Economy
Bagwell Center Policy Brief
“Assuming every film job in Georgia is the result of the tax credits approved, the cost is $64,000 (full-time and part-time) to $119,000 (FTE) in tax credits per job. The $800 million subsidy through tax credits in 2018 is equivalent to 3 percent of Georgia’s state-funded budget or $220 per household.”
Hicks, Michael; Faulk, Dagney and Devaraj, Srikant (2019)
Tax increment financing: Capturing or creating growth?
Growth and Change
“The results of the adoption model suggest that higher local property tax rates (which likely push municipal and county governments near the tax cap) play a role in TIF adoption. We also find that higher incomes and higher employment growth are correlated with TIF adoption, suggesting TIF is used to capture the growth that is otherwise occurring.”
“We then examine the impact of TIF upon property values after controlling for their adoption. Our salient findings are that TIF assessed value does not increase, while non‐TIF assessed value declines as the share of assessed value within TIFs increases. This complements the first‐stage findings, which suggest TIF captures growth that would have occurred even in the absence of TIF.”
“From the viewpoint of informing policy, our results suggest that the impact of TIF is limited to transfer effects. Thus, policy efforts designed to eliminate TIF’s which capture economic activity do not meet the ‘but for’ test are warranted.”
Partridge, Mark D.; Tsvetkova, Alexandra; Schreiner, Sydney and Patrick, Carlianne (2019)
The Effects of State and Local Economic Incentives on Business Start-Ups in the U.S.: County-Level Evidence
Andrew Young School of Policy Studies Research Paper Series
“We find that incentives have a statistically significant, negative relationship with start-up rates in total and for some industries including export-based and others that often receive incentives. Our findings support critics who contend that incentives crowd out other economic activity, potentially reducing long-term growth.”
“Incentives for export industries and for manufacturing in particular are negatively associated with the change in total startups. These findings suggest that, in contrast to their intended purpose, incentives crowd out new firms, and the crowding out effect is so large that it offsets any effect incentives might have in attracting new firms to U.S. counties.”
Drucker, Joshua; Kim, Geon and Weber, Rachel (2019)
Did incentives help municipalities recover from the Great Recession? Evidence from Midwestern cities
Growth and Change
“We find that economic development incentives generally are not closely aligned with manufacturing job changes, even in three Midwestern states that have managed to hold on to a portion of their industrial bases. The economic benefits conferred by TIF and the other incentives may be unattractive to manufacturing enterprises or yield insufficient benefits to overcome long‐term economic and market influences driving industrial restructuring.”
“[W]e do not find compelling evidence that economic development subsidies created or retained jobs to help municipalities recover from the Great Recession.”
Patrick, Carlianne and Stephens, Heather (2019)
Incentivizing the Missing Middle: The Role of Economic Development Policy
Andrew Young School of Policy Studies Research Paper
“State and local policy-makers use economic development incentives to promote local economic growth, and, presumably, provide employment opportunities. However, incentives may have unintended consequences.”
“We find evidence that incentivizing creative-class and high-wage industries may be contributing to the hollowing out of the middle class; that targeting working and middle-class industries alleviates this trend without hurting employment in other industries; and that raising net taxes or reducing incentives on creative-class and high-wage industries could help increase working and middle-class employment without affecting employment in other industries.”
Tuszynski, Meg and Stansel, Dean. (2018)
Targeted State Economic Development Incentives and Entrepreneurship
Journal of Entrepreneurship and Public Policy
“While economic development incentives are touted as being extremely important for the economic development of a state, our results indicate a much more mixed picture when it comes to entrepreneurship. In no specification were we able to uncover a relationship between development incentives and either net new business formation or the rate of sole proprietorships.”
“In all specifications, we found a negative and statistically significant relationship between economic development incentives and patent activity. Our results suggest that development incentives can at best help large businesses over the short run, and at worst harm small businesses in the short run and slow innovation (as measured by patents per 100,000 residents).”
Donegan, Mary; lESTER, T. WILLIAM & LOWE, NICHOLA. (2018)
“Striking a Balance: A National Assessment of Economic Development Incentives.”
Upjohn Institute Working Paper
“Overall, we find that incentivized establishments lead to lower employment gains than their nonincentivized peers.”
“By comparing incentivized establishments to a carefully selected control group, we cast doubt on the biggest claim made by incentive proponents that ‘but for’ the incentive payment, job creation would not occur. This simple but direct finding—that incentives do not create jobs—should prove critical to policymakers.”
“When we examine the overall effectiveness of state incentive grants on firm-level performance, we find little evidence that they generate new jobs or other direct economic benefits to the states that employ them.”
“Regardless of the reasons why, our findings should be a caution to policymakers interested in chasing very large establishments.”
Bartik, Timothy J. (2018)
“‘But For’ Percentages for Economic Development Incentives: What percentage estimates are plausible based on the research literature?”
Upjohn Institute Working Paper
“For a typical state and local incentive package, in only 2 percent to 25 percent of the incented projects is the incentive decisive in tipping a location, expansion, or job retention decision towards that state or local area. In the other 75 percent to 98 percent of the time, the same decision would have been made without the incentive”
“The main reason ‘but for’ percentages aren’t higher is that there are many other location and cost factors that have more major effects on a firm’s costs and profitability.”
Mitchell, Matthew D., & Winter, Tamara
The Opportunity Cost of Corporate Welfare: Targeted Economic Development Incentives and GASB 77 State Comparisons
Mercatus Center
“In nearly every state, eliminating corporate incentives would allow for a reduction of the major taxes levied on constituents.”
“If state lawmakers want to create an equitable and business-friendly environment for all firms and industries, they should avoid offering targeted corporate incentives and instead pursue an economic growth strategy that works by enhancing the economic freedom of all their citizens.”
Dove, John A. & Sutter, Daniel (2018)
Is There a Tradeoff Between Economic Development Incentives and Economic Freedom? Evidence from the US States
The Review of Regional Studies
“We find that states which have been more active with development incentives have experienced lower levels of overall economic freedom, which appears to be largely channeled through the labor market freedom subcomponent scores and, to a lesser extent, the tax policy scores.”
“To the extent that policy implications are to be drawn from our findings, these results suggest that the use of development incentives can create adverse distortions within an economy, which has a deleterious effect on economic freedom and tax competitiveness.”
Coyne, Christopher J. and Moberg, Lotta (2018)
The Political Economy of State-Provided Targeted Benefits
Mercatus Working Paper
“The purpose of targeted benefits, as stated by their proponents, is to promote employment, innovation, economic growth, and revitalization… Despite their good intentions, policymakers often overlook the unseen and unintended negative consequences of targeted benefits.”
“State governments cannot plan economic progress by relying on targeted benefits. Reallocating scarce recourses to their highest-valued uses requires market knowledge about those resources’ alternative uses. Policymakers therefore lack the ability to solve the core economic problem required for development. As well as misallocating resources, targeted benefits encourage rent-seeking and thus cronyism. When cronyism becomes institutionalized, it threatens the long-term dynamism of the market economy. Private, productive entrepreneurship and voluntary exchange are increasingly replaced by unproductive entrepreneurship in the form of rent-seeking and political favoritism.”
Jensen, Nathan (2017)
Job creation and firm-specific location incentives
Journal of Public Policy
“My findings from the establishment-level data indicate that incentive programmes have no discernable impact on firm expansion, measured by job creation. In addition, the survey data suggest that incentive recipients highly recommend this programme to other firms, but few firms actually increased their employment in Kansas because of these incentives; similarly, very few firms would have left the state if they had not benefited from this programme. Thus, incentives have little impact on the relocation or expansion decisions of firms.”
Bundrick, Jacob & Snyder, Thomas Jack (2017)
Do Business Subsidies Lead to Increased Economic Activity? Evidence from Arkansas’s Quick Action Closing Fund
The Review of Regional Studies
“These models offer no evidence to suggest that providing [Quick Action Closing Fund] subsidies to businesses within a given county provides the county with any significant cumulative private employment and establishment benefits… However, we do find evidence of a statistically significant, but economically small, negative cumulative establishment spillover effect related to the QACF subsidies provided to businesses in a given county’s bordering counties.”
“Our results have important policy implications, not just for Arkansas, but for other states that use similar deal-closing funds. The evidence presented in this analysis provides reason to be skeptical of Arkansas’s QACF as a job creator, at least at the county level.”
Jansa, Joshua M., & Gray, Virginia (2017)
Captured Development: Industry Influence and State Economic Development Subsidies in the Great Recession Era
Economic Development Quarterly
“A large political presence helps forward industry interests before government and has the potential to capture state governments. We find support for the cultural capture model by demonstrating that a greater number of lobbyists and campaign contributions from businesses leads to more subsidy spending, all else equal. We conclude that subsidies, and which companies receive them, are a product of both politics and economics.”
Patrick, Carlianne (2016)
Identifying the Local Economic Development Effects of Million Dollar Facilities
Economic Inquiry
“In the competition between geographically fixed jurisdictions for mobile capital, the attraction of a large, new establishment is seen by some as the holy grail of economic development. Consequently, jurisdictions are willing to offer substantial financial incentives to attract large establishments. Critics of economic development incentives assert that large inducements have negative efficiency, equity, and financial consequences for local communities. Advocates argue incentivized establishments generate significant economic development externalities, and thus incentives are simply compensation for the spillovers produced by the establishment.”
“The preferred estimates indicate successful attraction of a large new plant induces modest increases in new economic activity that does not generate fiscal surplus for winning counties.”
Harger, Kaitlyn; Humphreys, Brad R. & Ross, Amanda (2016)
Do New Sports Facilities Attract New Businesses?
Journal of Sports Economics
“We find no evidence of any effect, positive or negative, of new sports facilities on new businesses around these facilities.”
“An analysis of industry-level data does not uncover any specific patterns of new business openings or increased new employment at new businesses after the opening of a new sports facility.”
“Opening a new stadium or arena does not appear to generate new business formation in nearby locations.”
Beekmans, Jasper; Ploegmakers, huub; Martens, Karel & van der Krabben, Erwin (2016).
Countering decline of industrial sites: Do local economic development policies target the neediest places?
Urban Studies
“…the economic performance of industrial sites bears little relevance on policymakers’ decisions to target industrial sites for regeneration. Therefore industrial sites that are targeted for regeneration are not necessarily the industrial sites that are the ones in need of these programmes.”
“…it is at least doubtful that public money for the regeneration of industrial sites is always used for what it is meant for, namely targeting those industrial sites that are clearly underperforming in an economic sense compared to other sites.”
“…other criteria, such as political and strategic decision making influence policymakers’ decisions to target industrial sites for regeneration, thus making it at least doubtful that public money for the regeneration of industrial sites is being spent on what it is meant for.”
Wang, Jia (2015)
Do Economic Development Incentives Crowd Out Public Expenditures in U.S. States?
The B.E. Journal of Economic Analysis & Policy
“In particular, the main findings indicate that incentives expenditures are associated with decreases in expenditures on productive public goods such as education, health and human services, sanitation and utilities. Empirical evidence shows that incentives do not seem to contribute to more spending on productive public goods and services after two years in the future. This contradicts the claims that incentives lead to beneficial growth in the economy. Or if growth occurs, it does not lead to expansion of spending on productive public goods and services.”
Jensen, Nathan; Malesky, Edmund & Walsh, Matthew (2015)
Competing for global capital or local voters? The politics of business location incentives.
Public Choice
“We find evidence that cities with elected mayors provide larger incentives than non-elected city managers… We also find that elected mayors enjoy more lax oversight of incentive projects than their appointed counterparts.”
Patrick, Carlianne (2014)
Does increasing available non-tax economic development incentives result in more jobs?
National Tax Journal
“The most robust estimates indicate that increasing the ability of governments to aid private enterprise has a significant negative medium-term effect on rural county employment levels but no significant effects otherwise. Urban counties may reap some short-term level benefits, but these effects are statistically indistinguishable from zero in the medium-term and when the sample is restricted to border counties. The results call into question the policy of subsidizing capital in order to create jobs.”
“The paper’s findings suggest that creating more tools for governments to aid private capital is an ineffective local job creation policy.”
Reese, Laura A. (2014)
If All You Have Is A Hammer: Finding Economic Development Policies That Matter
The American Review of Public Administration
“…the factors most consistently and positively related to economic health are investments in the downtown, spending on basic local public services, and using no economic development incentives at all.
“These findings suggest one primary policy recommendation: the wisest course of action for most cities would be to eschew particularized development incentives, especially those that require tax expenditures.”
Kline, Patrick & Moretti, Enrico (2013)
People, Places and Public Policy: Some Simple Welfare Economics of Local Economic Development Programs
National Bureau of Economic Research Working Paper
“While place based policies may be welfare enhancing for the target community they may be welfare reducing for the nation as a whole. Before devoting resources to such programs, national policy makers should compare the welfare benefits enjoyed by the target locality to the cost of welfare losses in the localities from which economic activity is diverted.”
Florida, Richard; Melander, Charlotta & Matheson, Zara (2012)
Regardless How They’re Counted, Incentives Do Nothing for Economic Development
CityLab
“First off, the states that spend more on incentives spend more on all types of them… And, second, incentives still do not have any meaningful relationship to the economic performance of states.”
“Even when we take out sales tax and related tax refunds, we find no relationship between incentives and any meaningful measure of economic performance. As before, there is no statistically significant correlation to economic output per capita, none with wages, none with income, and none with educational attainment, measured as college grads as a share of adults.”
Bruce, Donald; Deskins, John A.; Hill, Brian C. & Rork, Jonathan C. (2009)
(Small) Business Activity and State Economic Growth: Does Size Matter?
The Review of Regional Studies
“…small establishment births are the single largest determinant of growth in [Gross State Product], [State Personal Income], and employment…the results indicate that the most fruitful policy option available to state governments is to establish and maintain a fertile environment for new establishment formation. Every one of the models indicates that states with more new small firm establishments grow at a higher rate over time, even after one controls for the level of economic activity and a variety of other factors.”
Neumark, David and Kolko, Jed (2008)
DO ENTERPRISE ZONES CREATE JOBS? EVIDENCE FROM CALIFORNIA’S ENTERPRISE ZONE PROGRAM
National Bureau of Economic Research Working Paper
“The evidence indicates that enterprise zones do not increase employment. We also find no shift of employment toward the lower-wage workers targeted by enterprise zone incentives. We conclude that the program is ineffective in achieving its primary goals.”
“Although the evidence on number of establishments is weak, one possible interpretation of a decline in the establishment count coupled with no change in employment – which implies that establishments are becoming larger – is that there are fixed costs to taking advantage of enterprise zone benefits, and large establishments (or firms) are therefore more likely to find enterprise zone benefits attractive. If this interpretation is valid, it suggests that enterprise zone policies do not particularly favor and may even adversely affect entrepreneurship in the form of small business creation.”
Coates, Dennis & Humphreys, Brad. (2008)
Do Economists Reach a Conclusion on Subsidies for Sports Franchises, Stadiums, and Mega-Events?
Econ Journal Watch
“The evidence reveals a great deal of consistency among economists doing research in this area. That evidence is that sports subsidies cannot be justified on the grounds of local economic development, income growth or job creation, those arguments most frequently used by subsidy advocates.”
“There now exists almost twenty years of research on the economic impact of professional sports franchises and facilities on the local economy. The results in this literature are strikingly consistent. No matter what cities or geographical areas are examined, no matter what estimators are used, no matter what model specifications are used, and no matter what variables are used, articles published in peer reviewed economics journals contain almost no evidence that professional sports franchises and facilities have a measurable economic impact on the economy.”
“The large and growing peer-reviewed economics literature on the economic impacts of stadiums, arenas, sports franchises, and sport mega-events has consistently found no substantial evidence of increased jobs, incomes, or tax revenues for a community associated with any of these things.”
Bartik, Timothy J. (2005)
“Solving the Problems of Economic Development Incentives”
Growth and Change
“I conclude that incentive reform should focus on improving the process and design of local incentive policy in basic ways: a more open and democratic process with full information, a budget constraint on incentives, better benefit–cost analysis, incentives focused on encouraging the aspects of new business activity that bring social benefits, and performance requirements. “
“Economic development decision making at the local level usually has been
dominated by local business interests, including Chambers of Commerce, newspapers, banks, and real estate developers.”
“… wasteful economic development incentives should be dealt with largely by opening up the incentives policy process at the state and local level to broader public participation and debate.”
Peters, Alan & Fisher, Peter. (2004)
The Failures of Economic Development Incentives
Journal of The American Planning Association
“…the best case is that incentives work about 10% of the time, and are simply a waste of money the other 90%.”
“In fact, there are very good reasons—theoretical, empirical, and practical—to believe that economic development incentives have little or no impact on firm location and investment decisions.”
“Given the weak effects of incentives on the location choices of businesses at the interstate level, state governments and their local governments in the aggregate probably lose far more revenue, by cutting taxes to firms that would have located in that state anyway than they gain from the few firms induced to change location.”
“…continuing on the path of traditional incentive-based economic development policy will simply produce an unending merry-go-round of tax cuts and subsidies whose net effect is to starve government of the resources it needs to finance the services it should be providing and to make the state and local tax system ever more regressive.”
Fox, William F. & Murray, Matthew N. (2004)
Do Economic Effects Justify the Use of Fiscal Incentives?
Southern Economic Journal
“…large firms fail to produce significant net benefits for their host communities, calling into question the high-stakes bidding war over jobs and investment.”
“In all likelihood, the absence of significant growth impacts means that large companies simply displace oher sources of job and income growth in the regional economy.”
“Since growth would have taken place absent the large firm’s location, typical business recruitment strategies focused on larger enterprises along with the liberal granting of tax and other incentives to the same firms is simply not a cost-effective economic development strategy.”
Swenson, David and Eathington, Liesl (2002)
Do Tax Increment Finance Districts Spur Social and Economic Growth?
Iowa State University
“The proliferation of TIF districts in Iowa and TIF-increment spending is intended
to bolster the state’s economic and population fortunes… We have determined that these measures do not yield significant positive outcomes for the state of Iowa and its tax payers.”
“It seems also apparent that the ease with which TIF district designation can be done in Iowa, along with the multiplicity of uses that TIF districts can be put, that the law now has become a de facto entitlement for new industry and housing development in much of the state with little to no evidence of attention paid to the overall public benefit or the mean costs of the practice. It also seems apparent that given the ease with which these districts can be developed that cities are somewhat cynically preemptively capturing new valuation and tax revenues in the name of economic development, but that in the main, this preemption is likely yielding much more collective fiscal harm across taxing districts in the long run than good.”
Gabe, Todd M. & Kraybill, David S. (2002)
The Effect of State Economic Development Incentives on Employment Growth of Establishments
Journal of Regional Science
“First, do incentives stimulate job creation in business establishments? Second, do businesses overestimate the number of jobs they will create to receive more lucrative incentive packages from the government? According to the empirical evidence presented in the paper, the answers to those questions are ‘probably not’ and ‘it appears they do.’ “
“Our analysis suggests that incentives do not substantially increase, and may even decrease slightly, the amount of employment change in the two years after an establishment launched an expansion. After controlling for other factors, we found that the effect of incentives on establishments that received incentives is a decrease of 10.5 jobs per establishment… the existence of incentives results in expansions that are about 20 percent smaller than would be the case if incentives were not available.”
“…our findings suggest that incentives do not result in the creation of more jobs than would have been created without the programs., Why them are expansion incentives offered so often? It is likely that incentives are offered in some cases primarily to give politicians ‘talking points’ or ‘bragging rights’ regarding their role in expansions whose true cause cannot be clearly identified by the electorate. Furthermore, voters generally do not receive information on whether businesses that receive incentives actually create the number of jobs they promise. Given the imperfect information available to voters, the overestimation of announced jobs might result from complicity between business managers and politicians, both of whom presumably gain from the arrangement.”
Dye, Richard & Merriman, David (2000)
The Effects of Tax Increment Financing on Economic Development
Journal of Urban Economics
“We find clear and consistent evidence that municipalities that adopt TIF [Tax Increment Financing] grow more slowly after adoption than those that do not.”
“Municipalities that elect to adopt TIF stimulate the growth of blighted areas at the expense of the larger town. We doubt that most municipal decision-makers are aware of this tradeoff or that they would willingly sacrifice significant municipal growth to create TIF districts. Our results present an opportunity to ponder the issue of whether, and how much, overall municipal growth should be sacrificed to encourage the development of blighted areas.”
Siegfried, John, J., and Zimbalist, Andrew. (2000)
The Economics of Sports Facilities and Their Communities
Journal of Economic Perspectives
“Few fields of empirical economic research offer virtual unanimity of findings. Yet, independent work on the economic impact of stadiums and arenas has uniformly found that there is no statistically significant positive correlation between sports facility construction and economic development.”
“The conclusion that sports teams and facilities do not stimulate economic growth is surprising to many people. With live telecasting of games, daily coverage on television news and in the sports sections of newspapers, professional sports play a huge role in U.S. culture. Yet sports teams are small businesses. Yearly average team revenues in 1999 are around $55 million in the NHL, $75 million in the NBA, $85 million in MLB and $100 million in the NFL. For a medium-size city like
St. Louis, the baseball team accounts for less than 0.3 percent of local economic activity; for a large city like New York, a baseball team contributes less than 0.03 percent of economic output.”
“Sound businesses move in search of a more qualified or less expensive labor force, a convenient location for inputs or sales, a good infrastructure, a sound fiscal environment with amenable tax policy, attractive government services, and appealing cultural opportunities. The latter may include the quality of the local theater, opera, symphony, parks, art museums, hospitals, public schools, universities or sports teams. If the first half dozen or so items are equivalent between two cities, then the business may look at cultural amenities and within them may consider sports. It does not seem plausible that the presence or absence of sports teams would be a decisive location factor for more than a few companies. There is no systematic evidence that business relocations follow sports teams.”
Burstein, Melvin & Rolnick, Arthur J. (1995)
Congress should end the economic war between the states
Annual Report
“When states compete through subsidies and preferential taxes for specific businesses, the overall economy suffers. From the states’ point of view each may appear better off competing for particular businesses, but the overall economy ends up with less of both private and public goods than if such competition was prohibited.”
“There is another reason businesses will be less productive when states are allowed to compete for individual businesses. States may increase taxes on those firms that are less likely to move to offset the lost revenue from firms that have moved (or have threatened to move).”
“We have assumed that states have the information to understand the businesses they are courting; that is, their willingness to move, how long they will stay in existence and how much tax revenue they will generate. In practice, states have much less than perfect information. Assuming all states are so handicapped, they will on average end up with fewer jobs and tax revenues than they had anticipated, and at times the competition may not even be worth winning.”
“Competition among governments based on their general tax and spend policies leads to a better outcome for the overall economy. However, when that competition takes the form of preferential financial treatment for specific companies, the overall economy is made worse off. Such competition results in a misallocation of resources and, in particular, too few public goods.”