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This editorial by the @nytimes gets the main points right in the debate about incentives: nytimes.com/2019/07/09/opi…
As editorial points out, because incentives, although large in some respects, are small relative to other location factors, average-sized incentives have modest effects on location decisions.
As shown in my research review that they cite, average-sized incentives probably tip less than 25% of incented firms' location decisions: research.upjohn.org/cgi/viewconten…
This obviously raises the ratio of incentive costs to actually induced new jobs, which makes it more difficult for incentives to have benefits greater than costs.
Another important point in @nytimes editorial: even though the induced jobs will increase the tax base, new jobs also bring along increased public service demands, which reduces the fiscal benefits from even successful incentives.
Now, successful job creation does have potentially large benefits for local workers, in higher employment/population ratios and higher earnings per cap. But for these benefits to be > than incentive costs, need programs with lower costs of creating jobs than many incentives.
In other words: many incentives today don't even make sense in benefit-cost terms from a local perspective, let alone a national perspective. As the editorial argues, in many cases, it is best interests of states to "say No" by reforming excessive incentives.
How to reform: I've argued before that if long-term tax incentives to firms are significantly cut back, and much more targeted at high-multiplier firms, they can pay off for local workers: research.upjohn.org/up_policybrief…
But the biggest needed reform is pursuing other methods of local job creation and local wealth creation that are more cost-effective, such as investing in infrastructure, land development, job training, education, and customized business services such as manufacturing extension.
The @nytimes editorial mentions my report on how to help manufacturing-intensive communities that lays out case for why other methods of helping job creation in distressed areas will be more cost-effective than poorly-designed long-term tax incentives: cbpp.org/research/full-…
This report, done at request of @econjared for @CenterOnBudget , summarizes a longer technical report which gets into more detail for those interested: research.upjohn.org/cgi/viewconten…
We do have a national problem with distressed places that needs to be addressed, in part through encouraging job growth in distressed places. But there are alternatives to our current incentive practices that have higher ratios of benefits to costs.
This is a key message for state and local policymakers: there are alternative policies that can address needs of their residents for more and better jobs. Current incentive practices are not the only game in town.
