October 28, 2019

Ending the Economic Race to the Bottom: An Interstate Compact Is a Win-Win Solution to Subsidies

Testimony before the Utah State Legislature Economic Development and Workforce Services Interim Committee
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Michael Farren testified before the Utah State Legislature’s Economic Development and Workforce Services Interim Committee at its September 18th meeting in Salt Lake City, Utah. His presentation explained how an interstate compact could help end the wasteful practice of recruiting corporations to the state by providing targeted economic development incentives.

His presentation covered a brief history of targeted economic development subsidies (TEDS), described the core problems with TEDS (namely, that they don’t work, that they may actually slow local economic growth, and that they definitely lead to less national growth), and outlined why TEDS are still used despite these problems (because most nonacademic economic development research is a one-sided benefits-only analysis, and politicians face a “prisoners dilemma” that motivates them to offer subsidies). Policy solutions to this “TEDS dilemma” will be difficult, but an interstate compact offers a way for states to work together, and Farren’s presentation illustrates some basic elements that an effective interstate compact would need to include.