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Do Economic Effects Justify the Use of Fiscal Incentives?

Author

Listed:
  • 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.

Suggested Citation

  • William F. Fox & Matthew N. Murray, 2004. "Do Economic Effects Justify the Use of Fiscal Incentives?," Southern Economic Journal, Southern Economic Association, vol. 71(1), pages 78-92, July.
  • Handle: RePEc:sej:ancoec:v:71:1:y:2004:p:78-92
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    References listed on IDEAS

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    Cited by:

    1. Anna Alberini & Dennis Guignet, 2008. "Voluntary Cleanups and Redevelopment Potential: Lessons from Baltimore, Maryland," Working Papers 2008.87, Fondazione Eni Enrico Mattei.
    2. 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.
    3. Kelly D. Edmiston, 2007. "The role of small and large businesses in economic development," Economic Review, Federal Reserve Bank of Kansas City, issue Q II, pages 73-97.
    4. 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).
    5. Imtiaz Ahmad, 2015. "The Value of Export Incentives," Lahore Journal of Economics, Department of Economics, The Lahore School of Economics, vol. 20(2), pages 99-127, July-Dec.
    6. 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.
    7. Rougé Jean-François & Chopov Borislav, 2016. "Hypercompetition & Fiscal Attractiveness," Economics, De Gruyter Open, vol. 4(2), pages 75-93, December.
    8. Saxon, Nicholas & Tosun, Mehmet S. & Yang, Jingjing, 2015. "State and Local Sales Taxes and Business Activity in the United States," IZA Discussion Papers 9413, Institute for the Study of Labor (IZA).
    9. 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, July.
    10. Nathan Jensen & Edmund Malesky & Matthew Walsh, 2015. "Competing for global capital or local voters? The politics of business location incentives," Public Choice, Springer, vol. 164(3), pages 331-356, September.
    11. Jofre-Monseny, Jordi & Sánchez-Vidal, Maria & Viladecans-Marsal, Elisabet, 2015. "Big plant closures and agglomeration economies," LSE Research Online Documents on Economics 64621, London School of Economics and Political Science, LSE Library.
    12. 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.
    13. Timothy J. Bartik & George Erickcek, 2014. "Simulating the Effects of the Tax Credit Program of the Michigan Economic Growth Authority on Job Creation and Fiscal Benefits," Economic Development Quarterly, , vol. 28(4), pages 314-327, November.
    14. Paolo Rosato & Anna Alberini & Valentina Zanatta & Margaretha Breil, 2010. "Redeveloping derelict and underused historic city areas: evidence from a survey of real estate developers," Journal of Environmental Planning and Management, Taylor & Francis Journals, vol. 53(2), pages 257-281.
    15. Kelly Edmiston, 2004. "The role of small business in economic development," Community Affairs Research Working Paper 2005-01, Federal Reserve Bank of Kansas City.
    16. Adams, Brian, 2016. "The employment impact of motor vehicle assembly plant openings," Regional Science and Urban Economics, Elsevier, vol. 58(C), pages 57-70.
    17. 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.
    18. Marian Dinga, 2011. "The Role of Investment Incentives in Regional FDI Reallocation: A Regression-Discontinuity Approach," CERGE-EI Working Papers wp438, The Center for Economic Research and Graduate Education - Economics Institute, Prague.

    More about this item

    JEL classification:

    • H0 - Public Economics - - General
    • R0 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General

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