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The Failures of Economic Development Incentives

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Amidst the continuing controversy over American economic development incentives, this article looks at three key effectiveness issues: Do economic development incentives encourage new investment and employment? Are these incentives targeted at economically depressed areas or economically depressed people? How costly are these incentives? For all these questions, our findings come out against traditional economic development incentives. We suggest that there is a need for a radical transformation of economic development policy in the U.S.
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... Unlike agglomeration, the effect of incentives and taxation on the location decision of firms is not well established in the literature. As summarized by Peters and Fisher (2004), early studies conducted before 1980 found that incentives had at best a marginal impact on the firm location decision and did not significantly alter the spatial distribution of firms. Over time, with improvements in econometric modeling, researchers are now better able to model the influence of taxes and incentives on location. ...
... These results suggest that taxes do not matter for the location decision of foreign-owned firms. This contrasts some previous findings in the urban and regional economics literature (Bartik 1991); (Peters and Fisher 2004); (Arauzo-Carod, Liviano-Solis, and Manjón-Antolín 2010); (Bartik 2018); (Walckzak, Drenkard, and Bishop-Henchman 2018). This is a relevant finding that could help inform today's debate over taxes and their effect on investment in the United States. ...
... Potentially, incentives (including tax breaks) could increase demand for high-wage employment and local inputs, thus elevating economic prosperity (Peters and Fisher 2004). This paper provides evidence regarding incentives and the location decisions of foreign investors, based on the fDi Markets and the Bartik databases. ...
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