What should policymakers do about state and local business incentives?

Louise Story of the New York Times has a series, starting December 2nd (2012), on state and local business incentives.

Full disclosure: I was interviewed by Ms. Story for the series, and I am quoted in the first article.

From my perspective, the most important new finding in the first article is that state and local business incentives may be over $80 billion per year. This significantly exceeds many previous estimates.

The article also points out the following issues with incentives: many incentives go to locally-oriented businesses that are unlikely to have their location decisions affected by incentives; many incentives do not have claw-back provisions allowing state or local governments to recover some incentives if the assisted businesses decide to leave; there is no systematic national data collected on these incentives; from a national perspective, these incentives can be viewed as a zero-sum game, or at least a game in which the national benefits are far less than the local benefits.

I’ve written extensively about incentives over the years, including on this blog.

One post summarizes the top 10 points about business incentives in my book.

Another post discusses how federal policy might deal with the zero-sum game aspect of incentives.

Still another post discusses what state and local policymakers might do about incentives on their own.

Business incentives would benefit from national policy, or state and local policy, that would regulate and restrict incentives. These incentive reforms would incorporate tax incentives into the regular tax system, move away from financial incentives towards customized services that would be more regularly monitored, and focus more incentives on high-priority policies such as helping distressed areas and providing jobs for the long-term unemployed.

About timbartik

Tim Bartik is a senior economist at the Upjohn Institute for Employment Research, a non-profit and non-partisan research organization in Kalamazoo, Michigan. His research specializes in state and local economic development policies and local labor markets.
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