Tuesday, November 1, 2011

State tax credits don't work as intended

The Show-Me Institute has published a paper of mine that surveys the academic evidence on the effects of state tax credits. The paper, "Tax Credits as a Tool of State Economic Development Policy," finds that
  • Tax credits have not generally been found to lead to increased employment even at firms that receive them. This result seems to depend somewhat on the incentive structure of the tax credit program.
  • In some sectors and some localities, it is possible for tax credits to lead to increased employment in non-recipient firms. This suggests that agglomeration economies might play a limited role in determining the effectiveness of tax credits. The literature provides little to no guidance, however, as to when and where tax credits can be targeted for this purpose.
  • State tax credits do not tend to lead to higher levels of employment for local residents, nor, by extension, do they lead to higher levels of employment for state residents.