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The political economy of state-provided targeted benefits

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  • Christopher Coyne
  • Lotta Moberg

Abstract

The governments of American states often attempt to incentivize businesses to locate within their borders by offering targeted benefits to particular industries and companies. These benefits come in many forms, including business tax credits for investments, property tax abatements, and reductions in the sales tax. Despite good intentions, policymakers often overlook the unseen and unintended negative consequences of targeted-benefit policies. This paper analyzes two major downsides of these policies: (1) they lead to a misallocation of resources, and (2) they encourage rent-seeking and thus cronyism. We argue that these costs, which are often longer-term and not readily observable at the time the targeted benefits are granted, may very well outweigh any possible short-term economic benefits. Copyright Springer Science+Business Media New York 2015

Suggested Citation

  • Christopher Coyne & Lotta Moberg, 2015. "The political economy of state-provided targeted benefits," The Review of Austrian Economics, Springer;Society for the Development of Austrian Economics, vol. 28(3), pages 337-356, September.
  • Handle: RePEc:kap:revaec:v:28:y:2015:i:3:p:337-356
    DOI: 10.1007/s11138-014-0274-8
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    More about this item

    Keywords

    H1; H2; H3; P16; Target benefits; Economic calculation; Cronyism;
    All these keywords.

    JEL classification:

    • H1 - Public Economics - - Structure and Scope of Government
    • H2 - Public Economics - - Taxation, Subsidies, and Revenue
    • H3 - Public Economics - - Fiscal Policies and Behavior of Economic Agents
    • P16 - Economic Systems - - Capitalist Systems - - - Political Economy of Capitalism

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