March 14, 2018

Mercatus Center Scholars Publish on Targeted Economic Development Incentives in the Review of Regional Studies

The Review of Regional Studies recently published a special issue dedicated to the topic of targeted economic development incentives. Mercatus Center scholars guest-edited the issue and contributed a number of pieces, examining incentives from a variety of perspectives.

  • Matthew Mitchell, Daniel Sutter, and Scott Eastman introduce the special issue and summarize its papers. They discuss the relationship between targeted economic development incentives and another, more effective, approach to economic development—economic freedom. They also discuss the academic literature evaluating how targeted incentives affect communities as a whole, including those firms and industries not receiving subsidies, and conclude by discussing areas for future work.
  • Paul Byrne examines the credibility of the number of jobs reported to be created or preserved by local economic development agencies in Missouri. Reported jobs are not equivalent to net jobs as the taxes that support targeted incentives may depress jobs elsewhere. Byrne studies the relationship between reported jobs and actual county employment as measured by the Bureau of Labor Statistics. He finds that “the number of jobs reportedly created by TIF [tax increment financing] districts do not significantly impact county employment.”
  • Jacob Bundrick and Thomas Snyder analyze the relationship between deal closing funds and county-level private employment and private establishments from Arkansas’s Quick Action Closing Fund (QACF). They estimate these relationships using a variety of empirical techniques to measure both within-county and across-county relationships. They find little evidence to suggest that the QACF creates significant job and establishment growth.
  • John Dove and Daniel Sutter investigate the relationship between state and local targeted economic development incentives and state level economic freedom. Using a state-level panel data set that spans the period from 1994 to 2013, they find an economically and statistically significant negative relationship between incentives and freedom.
  • Peter Calcagno and Frank Hefner use a political economy approach to investigate the factors that correlate with a state’s use of targeted economic development incentives. Using data from 1993 to 2014 they investigate whether states with budget issues, high tax and regulatory burdens, and poorly trained labor forces are offering targeted incentives to potentially offset costly economic conditions. Their results “indicate that unemployment rates, fiscal policy conditions, and individual income tax burden are associated with the granting of targeted incentives by state and local governments.”