Do local economic development incentives have an impact on local property values, employment, and poverty rates that offer a public benefit to the entire metropolitan area? Or are they simply giveaways to business that could be better accomplished through direct cuts in business taxation?

The purpose of this paper is to answer these questions by summarizing some of the findings from the book, "Bidding for Business: The Efficacy of Local Incentives in a Metropolitan Area" (Upjohn Institute, 2000). In this paper we offer tabular and regression-based simulation evidence that leads to public policy suggestions regarding the future use of local incentives in U.S. metropolitan areas.

Economic development incentives are offered by local governments in the United States to retain or attract manufacturing and/or commercial enterprises.

This research is concerned with "first wave" incentives that began in the United States in the 1970s and continue until today. These include: manufacturing or commercial property tax abatements, tax increment finance authorities, downtown development authorities, and industrial development bonds. The reason that local governments offer these incentives is the perceived benefits that non-residential enterprises bring to a jurisdiction. State governments have an appropriate interest in the creation of local incentive programs if such incentives are effective at retaining and redirecting economic activity to places where there is a public benefit to the state arising from the creation of jobs there, as compared to elsewhere.

Much of the material in the research paper is taken from the description of incentive use in the metropolitan Detroit area, empirical analyses, and policy recommendations.

Three major findings emerge from the research.

The first is that when the decision to offer economic development incentives in a metropolitan area is left to local control, the likelihood that communities will offer them just because other communities in the metropolitan area are doing the same increases with time. This occurrence is very likely to reduce the possible effect that these incentives can have on redirecting economic activity to places where it is most needed.

Possibly related to this first finding, the researchers also find little evidence to support the belief that the benefits of local incentive use in a metropolitan are generally greater than the costs.

Finally, policymakers need to remember the important finding that local incentives increasing non-residential property values and subsequently decreasing local poverty rates, also decrease rates of residential employment through an increase in local population that can be greater than the number of jobs created. It is hard to argue in favour of the benefits of new jobs for existing residents when it is found that an incentive can bring a greater number of new residents than
new jobs, and thus decrease residential employment rates.

California State University, Sacramento - Department of Public Policy & Administration
John E. Anderson (Professor, Department of Economics), tel. +1 9162786304

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18/11/1999

John E. Anderson en Robert W. Wassmer

research

Urban Policy > Economy knowledge & employment > Urban economy

Employment, Business support