Economic Development Incentives – SAGE Business Researcher

Are governments giving away too much?

Executive Summary

The hotly fought competition for Amazon’s second headquarters and other recent megadeals to corporations looking to relocate have reignited a long-running debate over the value of economic development incentives. Proponents say these tax breaks, credits and other financial inducements are necessary to attract business and help bring jobs and investment to localities that are at a disadvantage in competitive marketplaces. Critics counter that such giveaways primarily benefit already prosperous corporations while reducing funding for education and other public services. Politicians often find it hard to resist offering subsidies, in part because they are eager to show constituents that they are fighting hard to attract jobs and investment. But public officials in several states and municipalities are now taking a hard look at incentive programs and reconsidering their value.

Among the key takeaways:

The level of corporate incentives has tripled over the past three decades, to at least $45 billion annually.
Economists say the most effective subsidies are ones that target businesses with the greatest job-creation potential and that rigorous cost benefit analysis is essential.
Some governments are conditioning incentives on performance-based standards that require companies to deliver promised jobs in advance of any payouts.

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Resources for Further Study

Bibliography

Books

Garofalo, Pat, “The Billionaire Boondoggle: How Our Politicians Let Corporations and Bigwigs Steal Our Money and Jobs,” St. Martin’s Press, 2019. An editor at Talk-Poverty.org, a website that explores issues of poverty, looks at why the public subsidizes so many projects for corporations and billionaires.

Jensen, Nathan M., and Edmund J. Malesky, “Incentives to Pander: How Politicians Use Corporate Welfare for Political Gain,” Cambridge University Press, 2018. Government professor Jensen and political scientist Malesky explore the political power of economic development incentives.

Rickard, Stephanie J., “Spending to Win: Political Institutions, Economic Geography, and Government Subsidies,” Cambridge University Press, 2018. A London School of Economics business professor argues that governments target subsidies to a select few at the expense of many.

Articles

Buhayar, Noah, and Lauren Leatherby, “Welcome to Tax Breaklandia,” Bloomberg Businessweek, Jan. 19, 2019, https://tinyurl.com/y9ukbxn4. Two reporters provide an in-depth look at how Portland is leveraging a new federal tax break designed to help the poor in its downtown.

Casselman, Ben, “A $2 Billion Question: Did New York Overpay for Amazon?” The New York Times, Nov. 13, 2018, https://tinyurl.com/y99l4bfm. A business journalist explores whether New York paid too much for its part of Amazon’s second headquarters.

Cowan, Jill, “North Texas cities turn incentives arsenals against each other in fight for business, jobs,” The Dallas Morning News, March 29, 2018, https://tinyurl.com/yawvn8be. A journalist looks at the cost of regional competition for companies in the number one state for relocations.

Isidore, Chris, “Foxconn may drop plans to build flat screens in Wisconsin,” CNN Business, Jan. 30, 2019, https://tinyurl.com/yc7tbwqc. A business reporter explains why Foxconn may be backing out of its deal: the company says a U.S. plant would be uncompetitive.

LeRoy, Greg, “Amazon’s HQ2 and the Rise of Big-Ticket Megadeals,” CityLab, Sept. 11, 2017, https://tinyurl.com/ycm7j4wy. An activist with an organization that tracks incentives asks why the deals are getting so large.

Schuetz, R.A., “Are federal ‘opportunity’ tax breaks going to right places?” Houston Chronicle, Jan. 7, 2019, https://tinyurl.com/y7ylynxc. A journalist looks at whether new tax incentives aimed at low-income areas are going where they are intended.

Reports and Studies

“How States Are Improving Tax Incentives for Jobs and Growth: A national assessment of evaluation practices,” Pew Charitable Trusts, May 2017, https://tinyurl.com/y992zwo3. The Washington-based research center provides a state-by-state analysis of incentives.

Bartik, Timothy J., “Who Benefits from Economic Development Incentives? How Incentive Effects on Local Income and the Income Distribution Vary with Different Assumptions about Incentive Policy and the Local Economy,” W.E. Upjohn Institute for Employment Research, March 2018, https://tinyurl.com/ycwydy5y. A senior economist at a group that researches unemployment shows how outsiders are more likely to benefit from economic development incentives over the long term.

Covington, Owen, “Elon Poll on Amazon HQ2: What residents in 19 U.S. finalist cities think about the $5B project,” Elon University, April 18, 2018, https://tinyurl.com/y7gxr9sa. Researchers discover that despite the potential costs, people are fairly bullish on Amazon coming to their town.

Irving, Will, Michael L. Lahr and Ray Caprio, “Review of Grow New Jersey and Economic Redevelopment and Growth Plans,” New Jersey Economic Development Authority/ Rutgers University, July 18, 2018, https://tinyurl.com/yaf75x8k. An audit of New Jersey’s economic development incentives finds some problems, including broken agreements.

Parilla, Joseph, and Sifan Lu, “Examining the Local Value of Economic Development Incentives: Evidence from four U.S. cities,” Brookings Institute, March 2018, https://tinyurl.com/yabof75p. Two researchers conclude that incentives can have value if the benefits go to the right areas and people.

Randall, Megan, et al., “Partners or Pirates?: Collaboration and Competition in Local Economic Development,” Urban Institute, December 2018, https://tinyurl.com/yafsc9cb. Researchers look at the cost of competition in economic development.

The Next Step

Backlash

DeHaven, James, “Huge, Tesla-style tax breaks cost cash-strapped Nevada schools $108 million over two years,” Reno Gazette Journal, Dec. 7, 2018, http://tinyurl.com/y7fm3yrm. The tax breaks Nevada awarded to major corporations have cost three school districts millions of dollars in potential tax revenue, according to a Reno newspaper’s analysis.

Ghaffary, Shirin, “Amazon’s HQ2 was supposed to be a win for New York City. Instead it has become a huge political battle,” Recode, Jan. 30, 2019, https://tinyurl.com/yaa5bwo5. New Yorkers are protesting both the size of the $3 billion subsidy package granted to the giant e-retailer and the secrecy surrounding the deal.

Gose, Joe, “Tax Breaks for Luxury Towers Spur Redevelopment, and Backlash,” The New York Times, Sept. 11, 2018, https://tinyurl.com/ydhorsux. Critics are questioning the incentives cities have granted to developers of luxury real estate because of the loss of much-needed tax revenue.

Virginia

Graham, Michelai, “Virginia universities have big plans to educate the workforce around Amazon’s second headquarters,” Technical.ly DC, Feb. 4, 2019, https://tinyurl.com/yahed7r9. Universities near Amazon’s new facility in Northern Virginia are planning to invest in technology-related education programs because of the new jobs that will be created.

Post, Sebastian, “Why Crystal City, Virginia, Was An Easy Choice For Amazon’s HQ2,” Forbes, Dec. 5, 2018, https://tinyurl.com/y76z7tq4. Northern Virginia was the best choice for Amazon’s new headquarters because of its proximity to Washington, an existing tech workforce and the availability of space for new offices and housing, says a real estate expert.

Sullivan, Patricia, “Amazon’s Va. headquarters expected to have $15 billion economic impact by 2030,” The Washington Post, Dec. 7, 2018, https://tinyurl.com/yceyvuds. Amazon’s headquarters will generate 59,000 jobs, $14.2 billion in economic activity and $1.83 billion in tax revenue for Virginia in the next 12 years, according to a 2018 Virginia Chamber Foundation study.

Organizations

Brookings Institution
1775 Massachusetts Ave., N.W., Washington, DC 20036
1-202-797-6000
https://www.brookings.edu/
Public policy institute conducting research on domestic and global issues.

Council for Community and Economic Research
PO Box 100127, Arlington, VA 22210
1-703-522-4980
www.stateincentives.org
Research organization that provides a database of state economic incentives.

Economic Development Tax Incentive Project, Pew Charitable Trusts
901 E St., N.W., Washington, DC 20004
1-202-552-2000
https://www.pewtrusts.org/en/projects/economic-development-tax-incentives
A team at the research organization provides some of the most comprehensive data on tax incentives by state.

Good Jobs First
1616 P St., N.W., Suite 210, Washington, DC 20036
1-202-232-1616
https://www.goodjobsfirst.org/
Policy research organization that supports public and corporate accountability.

Lincoln Institute of Land Policy
113 Brattle St., Cambridge, MA 02138
1-617-661-3016
https://www.lincolninst.edu/
Foundation that researches and promotes the effective use, taxation and stewardship of land.

National Association of Development Organizations
400 N. Capitol St., N.W., Suite 388, Washington, DC 20001
1-202-624-7086
https://www.nado.org/
A research and advocacy group for development organizations that promotes regional strategies to improve economic competitiveness and cooperation.

Urban Institute
2100 M St., N.W., Washington, DC 20037
1-202-833-7200
https://www.urban.org/
Think tank that conducts research on issues related to urban areas.

W.E. Upjohn Institute for Employment Research
300 S. Westnedge Ave., Kalamazoo, MI 49007
1-269-343-5541
https://upjohn.org/
Institute Senior Economist Timothy Bartik maintains the Panel Database on Incentives and Taxpayers, the most comprehensive information on state and local incentives in the United States.

DOI: 10.1177/237455680506.n1