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.

 


Tuszynski, Meg and Stansel, Dean. (2018)

Targeted State Economic Development Incentives and Entrepreneurship

Forthcoming, 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, T. William Lester, and Nichola Lowe. (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., and 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. and 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.”


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 and 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.”


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.”


Kline, Patrick and 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 and 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. and 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.”


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.”


 

Burstein, Melvin and 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.”