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Do Economic Effects Justify the Use of Fiscal Incentives?

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Author Info

  • William F. Fox

    ()
    (Department of Economics and Center for Business and Economic Research, 1000 Volunteer Boulevard, 100 Glocker Building, The University of Tennessee, Knoxville, TN 37996-4170)

  • Matthew N. Murray

    ()
    (Department of Economics and Center for Business and Economic Research, 1000 Volunteer Boulevard, 100 Glocker Building, The University of Tennessee, Knoxville, TN 37996-4170, USA)

Abstract

The siting of a large, new firm is often presumed to give rise to significant economic and tax benefits to the community of location. This presumption serves as the basis for the granting of lucrative economic development incentives to footloose businesses. This article examines whether large, mobile firms generate significant net benefits for the region of location. Panel data and nonrandom estimation techniques are applied to a primary database of large firms that made location decisions in the 1980s to explore the impact of location on regional economic performance. The empirical analysis explores different treatment regions (both effects within the county and the metropolitan statistical area [MSA] of location) and different control regions. The results show that large firms fail to produce significant net benefits for their host communities, calling into question the high-stakes bidding war over jobs and investment.

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Bibliographic Info

Article provided by Southern Economic Association in its journal Southern Economic Journal.

Volume (Year): 71 (2004)
Issue (Month): 1 (July)
Pages: 78-92

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Handle: RePEc:sej:ancoec:v:71:1:y:2004:p:78-92

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Web page: http://www.southerneconomic.org/
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Cited by:
  1. Anna Alberini, 2007. "Determinants And Effects On Property Values Of Participation In Voluntary Cleanup Programs: The Case Of Colorado," Contemporary Economic Policy, Western Economic Association International, vol. 25(3), pages 415-432, 07.
  2. Artz, Georgeanne M. & Orazem, Peter F. & Otto, Daniel M., 2005. "Meat Packing and Processing Facilities in the Non-Metropolitan Midwest: Blessing or Curse?," 2005 Annual meeting, July 24-27, Providence, RI 19242, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
  3. Paolo Rosato & Anna Alberini & Valentina Zanatta & Margaretha Breil, 2008. "Redeveloping Derelict and Underused Historic City Areas: Evidence from a Survey of Real Estate Developers," Working Papers 2008.60, Fondazione Eni Enrico Mattei.
  4. William H. Hoyt & J. William Harden, 2005. "MSA Location and the Impact of State Taxes on Employment and Population: A Comparison of Border and Interior MSA's," Working Papers 2005-01, University of Kentucky, Institute for Federalism and Intergovernmental Relations.
  5. Anna Alberini & Dennis Guignet, 2008. "Voluntary Cleanups and Redevelopment Potential: Lessons from Baltimore, Maryland," Working Papers 2008.87, Fondazione Eni Enrico Mattei.
  6. Brown, Jason P. & Pender, John & Wiser, Ryan & Lantz, Eric & Hoen, Ben, 2012. "Ex post analysis of economic impacts from wind power development in U.S. counties," Energy Economics, Elsevier, vol. 34(6), pages 1743-1754.
  7. Timothy J. Bartik & George A. Erickcek, 2012. "Simulating the Effects of Michigan's MEGA Tax Credit Program on Job Creation and Fiscal Benefits," Upjohn Working Papers and Journal Articles 12-185, W.E. Upjohn Institute for Employment Research.
  8. Kelly Edmiston, 2004. "The role of small business in economic development," Community Affairs Research Working Paper 2005-01, Federal Reserve Bank of Kansas City.

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