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Incentive Solutions

This paper reviews the research literature relevant to economic development incentives provided by state and local governments, and recommends reforms in these incentives. I argue that the main problem with current incentive policies is that state and local governments often provide incentives that are not in the best interest of that state or local area, for example that are excessively costly per job created, or that provide jobs that do not improve the job opportunities of local residents. I suggest that reforms should be "bottom-up" rather than "top-down." Regulation of incentives by the federal government, or by international trade treaties, may prevent both desirable and undesirable incentives. "Bottom-up" reforms would include more information on incentive offers, a budget constraint on the volume of incentives, stronger standards for job quality, accessibility, and performance in incentives, and better benefit-cost analyses of incentives.

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Paper provided by W.E. Upjohn Institute for Employment Research in its series Upjohn Working Papers and Journal Articles with number 04-99.

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Date of creation: Feb 2004
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Handle: RePEc:upj:weupjo:04-99
Note: A revised version of this paper titled "Solving the Problems of Economic Development Incentives" appears in Growth and Change, 36(2), Spring 2005.
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  1. Michael Wasylenko, 1997. "Taxation and economic development: the state of the economic literature," New England Economic Review, Federal Reserve Bank of Boston, issue Mar, pages 37-52.
  2. Timothy J. Bartik, 1994. "What Should the Federal Government Be Doing About Urban Economic Development?," Upjohn Working Papers and Journal Articles 94-25, W.E. Upjohn Institute for Employment Research.
  3. Andrew Haughwout & Robert Inman & Steven Craig & Thomas Luce, 2004. "Local Revenue Hills: Evidence from Four U.S. Cities," The Review of Economics and Statistics, MIT Press, vol. 86(2), pages 570-585, May.
  4. Timothy J. Bartik & Peter K. Eisinger & George A. Erickcek, 2003. "Economic Development Policy in Michigan," Book chapters authored by Upjohn Institute researchers, in: Charles L. Ballard & Paul N. courant & Douglas C. Drake & Ronald C. Fisher & Elisabeth R. Gerber (ed.), Michigan at the Millennium: A Benchmark and Analysis of Its Fiscal and Economic Structure, pages 279-297 W.E. Upjohn Institute for Employment Research.
  5. Timothy J. Bartik, 1996. "Eight issues for policy toward economic development incentives," The Region, Federal Reserve Bank of Minneapolis, issue Jun, pages 43-46.
  6. Alan H. Peters, 1993. "Clawbacks and the Administration of Economic Development Policy in the Midwest," Economic Development Quarterly, , vol. 7(4), pages 328-340, November.
  7. William H. Oakland & William A. Testa, 1996. "State-local business taxation and the benefits principle," Economic Perspectives, Federal Reserve Bank of Chicago, issue Jan, pages 2-19.
  8. Paul Osterman & Rosemary Batt, 1993. "Employer-centered training for international competitiveness: Lessons from state programs," Journal of Policy Analysis and Management, John Wiley & Sons, Ltd., vol. 12(3), pages 456-477.
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