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Are Local Economic Development Incentives Promoting Job Growth? An Empirical Case Study

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  • Franz Fuerst

    () (Department of Real Estate & Planning, University of Reading Business School)

  • John Mollenkopf

Abstract

At a time when cities are competing with one another to attract or retain jobs within a globalizing economy, city governments are providing an array of financial incentives to stimulate job growth and retain existing jobs, particularly in high cost locations. This paper provides the first systematic and comprehensive analysis of datasets on economic development incentives in New York City over the last fifteen years. The evidence on job retention and creation is mixed. Although many companies do not meet their agreed-upon job targets in absolute terms, the evidence suggests that companies receiving subsidies outperform their respective industries in terms of employment growth, that is, the grow more, or decline less. We emphasize that this finding is difficult to interpret, since firms receiving incentives may not be representative of the industry as a whole. In other words, their above-average performance may simply reflect the fact that the Economic Development Corporation (EDC) selects economically promising companies within manufacturing (or other industries) when granting incentives. At the same time, it is also possible that receiving incentives helps these companies to become stronger.

Suggested Citation

  • Franz Fuerst & John Mollenkopf, 2008. "Are Local Economic Development Incentives Promoting Job Growth? An Empirical Case Study," Real Estate & Planning Working Papers rep-wp2008-10, Henley Business School, Reading University.
  • Handle: RePEc:rdg:repxwp:rep-wp2008-10
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    File URL: http://www.henley.reading.ac.uk/rep/fulltxt/1008.pdf
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    References listed on IDEAS

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    1. Ernest P. Goss & Joseph M. Phillips, 1999. "Do Business Tax Incentives Contribute to a Divergence in Economic Growth?," Economic Development Quarterly, , vol. 13(3), pages 217-228, August.
    2. Robert Tannenwald, 1996. "State business tax climate: how should it be measured and how important is it?," New England Economic Review, Federal Reserve Bank of Boston, issue Jan, pages 23-38.
    3. 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.
    4. Timothy J. Bartik, 2000. "Jobs, Productivity, and Local Economic Development: What Implications Does Economic Research Have for the Role of Government?," Book chapters authored by Upjohn Institute researchers,in: Robert W. Wassmer (ed.), Readings in Urban Economics: Issues and Public Policy, pages 72-122 W.E. Upjohn Institute for Employment Research.
    5. Timothy J. Bartik, 1991. "The Effects of Property Taxes and Other Local Policies on the Intrametropolitan Pattern of Business Location," Book chapters authored by Upjohn Institute researchers,in: Henry W. Herzog & Alan M Schlottmann (ed.), Industry Location and Public Policy, pages 57-80 W.E. Upjohn Institute for Employment Research.
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    More about this item

    Keywords

    economic development incentives; job growth; manufacturing; subsidies; urban development; economic development policy;

    JEL classification:

    • H2 - Public Economics - - Taxation, Subsidies, and Revenue
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
    • R51 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Regional Government Analysis - - - Finance in Urban and Rural Economies

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