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Business Incentives and Employment: What Incentives Work and Where?

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Author Info
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)

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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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Publisher 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
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Handle: RePEc:ifr:wpaper:2009-02

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Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Michael Greenstone & Richard Hornbeck & Enrico Moretti, 2008. "Identifying Agglomeration Spillovers: Evidence from Million Dollar Plants," Working Paper Series 36-08, Rimini Centre for Economic Analysis, revised Jan 2008. [Downloadable!]
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  2. Leslie E. Papke, 1994. "Tax Policy and Urban Development: Evidence From The Indiana Enterprise Zone Program," NBER Working Papers 3945, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  3. 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. [Downloadable!]
  4. Todd M. Gabe & David S. Kraybill, 2002. "The Effect of State Economic Development Incentives on Employment Growth of Establishments," Journal of Regional Science, Blackwell Publishing, vol. 42(4), pages 703-730. [Downloadable!] (restricted)
  5. 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. [Downloadable!] (restricted)
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