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Business Incentives and Employment: What Incentives Work and Where?

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  • William Hoyt

    ()
    (Martin School of Public Policy and Administration and Department of Economics, University of Kentucky)

  • Christopher Jepsen

    (Department of Economics, University of Kentucky)

  • Kenneth Troske

    (Department of Economics, University of Kentucky)

Abstract

State governments offer tax and location-based incentives to entice firms to locate or expand operations in their state. We evaluate the effect of these incentives on employment using a panel data of Kentucky counties. These data are unique because they contain information on actual incentives received rather than on incentives offered, an important distinction because the majority of incentives offered are never claimed. Because Kentucky offers incentive plans similar to other states, the results are applicable to other states. Training incentives have a strong, positive effect on economic activity, whereas tax incentives have a more modest positive effect. These effects differ with the location of the county, with almost no impact in interior counties and much larger, positive and significant impacts in counties along state borders. There are few if any spillover effects to adjacent counties.

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File URL: http://www.ifigr.org/publication/ifir_working_papers/IFIR-WP-2009-02.pdf
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Bibliographic Info

Paper provided by University of Kentucky, Institute for Federalism and Intergovernmental Relations in its series Working Papers with number 2009-02.

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Length: 45 pages
Date of creation: Jan 2009
Date of revision:
Handle: RePEc:ifr:wpaper:2009-02

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References

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  1. Papke, Leslie E., 1994. "Tax policy and urban development : Evidence from the Indiana enterprise zone program," Journal of Public Economics, Elsevier, vol. 54(1), pages 37-49, May.
  2. Peter T. Calcagno & Henry Thompson, 2004. "State Economic Incentives: Stimulus or Reallocation?," Public Finance Review, , vol. 32(6), pages 651-665, November.
  3. Michael Greenstone & Richard Hornbeck & Enrico Moretti, 2008. "Identifying Agglomeration Spillovers: Evidence from Million Dollar Plants," Working Paper Series 36-08, The Rimini Centre for Economic Analysis, revised Jan 2008.
  4. Perloff, Jeffrey M & Wachter, Michael L, 1979. "The New Jobs Tax Credit: An Evaluation of the 1977-78 Wage Subsidy Program," American Economic Review, American Economic Association, vol. 69(2), pages 173-79, May.
  5. Todd M. Gabe & David S. Kraybill, 2002. "The Effect of State Economic Development Incentives on Employment Growth of Establishments," Journal of Regional Science, Wiley Blackwell, vol. 42(4), pages 703-730.
  6. Michael Greenstone & Enrico Moretti, 2003. "Bidding for Industrial Plants: Does Winning a 'Million Dollar Plant' Increase Welfare?," NBER Working Papers 9844, National Bureau of Economic Research, Inc.
  7. Faulk, Dagney, 2002. "Do State Economic Development Incentives Create Jobs? An Analysis of State Employment Tax Credits," National Tax Journal, National Tax Association, vol. 55(N. 2), pages 263-280, June.
  8. Yoonsoo Lee, 2004. "Geographic redistribution of U.S. manufacturing and the role of state development policy," Working Paper 0415, Federal Reserve Bank of Cleveland.
  9. Timothy J. Bartik, 1991. "Who Benefits from State and Local Economic Development Policies?," Books from Upjohn Press, W.E. Upjohn Institute for Employment Research, number wbsle.
  10. Peter S. Fisher, 1997. "Tax and spending incentives and enterprise zones," New England Economic Review, Federal Reserve Bank of Boston, issue Mar, pages 109-138.
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Cited by:
  1. R. Alison Felix & James R. Hines, Jr., 2011. "Who offers tax-based business development incentives?," Research Working Paper RWP 11-05, Federal Reserve Bank of Kansas City.
  2. 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.
  3. Timothy J. Bartik, . "The Revitalization of Older Industrial Cities: A Review Essay of 'Retooling for Growth'," Upjohn Working Papers and Journal Articles tjb2009, W.E. Upjohn Institute for Employment Research.
  4. Timothy J. Bartik & Kevin Hollenbeck, 2012. "An Analysis of the Employment Effects of the Washington High Technology Business and Occupation (B&O) Tax Credit," Upjohn Working Papers and Journal Articles 12-187, W.E. Upjohn Institute for Employment Research.
  5. Jeffrey Thompson, 2010. "Prioritizing Approaches to Economic Development in New England: Skills, Infrastructure, and Tax Incentives," Published Studies priorities_september7_per, Political Economy Research Institute, University of Massachusetts at Amherst.

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