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The Employment and Fiscal Effects of Michigan's MEGA Tax Credit Program

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Abstract

This paper estimates that Michigan's MEGA tax credit program to attract and retain businesses has large employment and fiscal benefits. MEGA provides discretionary tax credits to businesses, with the tax credit tied to the personal income taxes paid by employees on the new or retained jobs. We estimate the economic effects of MEGA using the Upjohn Institute's REMI model, and the research literature on how business location decisions respond to taxes. We estimate the fiscal effects of MEGA based on the research literature on how government spending and revenue respond to state personal income and population. The estimates suggest a lower bound to MEGA's effectiveness of being decisive in a little over 8 percent of the MEGA projects. Even with this modest success rate, MEGA is estimated to have fiscal benefits that offset about two-thirds of its gross fiscal costs. The net fiscal costs per job created of MEGA average less than $4,000 per job-year, which is less than the labor market benefits of job creation.

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  • Timothy J. Bartik & George Erickcek, 2010. "The Employment and Fiscal Effects of Michigan's MEGA Tax Credit Program," Upjohn Working Papers and Journal Articles 10-164, W.E. Upjohn Institute for Employment Research.
  • Handle: RePEc:upj:weupjo:10-164
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    1. Blanchflower, David G. & Oswald, Andrew J., 2004. "Well-being over time in Britain and the USA," Journal of Public Economics, Elsevier, vol. 88(7-8), pages 1359-1386, July.
    2. George I. Treyz & Dan S. Rickman & Gang Shao, 1991. "The REMI Economic-Demographic Forecasting and Simulation Model," International Regional Science Review, , vol. 14(3), pages 221-253, December.
    3. Timothy J. Bartik, 2007. "Solving the Problems of Economic Development Incentives," Book chapters authored by Upjohn Institute researchers,in: Ann Markusen (ed.), Reining in the Competition for Capital, chapter 5, pages 103-139 W.E. Upjohn Institute for Employment Research.
    4. Helms, L Jay, 1985. "The Effect of State and Local Taxes on Economic Growth: A Time Series-Cross Section Approach," The Review of Economics and Statistics, MIT Press, vol. 67(4), pages 574-582, November.
    5. Bruno S. Frey & Alois Stutzer, 2002. "What Can Economists Learn from Happiness Research?," Journal of Economic Literature, American Economic Association, vol. 40(2), pages 402-435, June.
    6. Alan H. Peters & Peter S. Fisher, 2002. "State Enterprise Zone Programs: Have They Worked?," Books from Upjohn Press, W.E. Upjohn Institute for Employment Research, number sezp, November.
    7. Timothy J. Bartik, 2001. "Jobs for the Poor: Can Labor Demand Policies Help?," Books from Upjohn Press, W.E. Upjohn Institute for Employment Research, number tjb2001, November.
    8. Donald Bruce & William F. Fox & M.H. Tuttle, 2006. "Tax Base Elasticities: A Multi-State Analysis of Long-Run and Short-Run Dynamics," Southern Economic Journal, Southern Economic Association, vol. 73(2), pages 315-341, October.
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    Citations

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    Cited by:

    1. Kenneth A. Couch & Douglas J. Besharov & David Neumark, 2013. "Spurring Job Creation in Response to Severe Recessions: Reconsidering Hiring Credits," Journal of Policy Analysis and Management, John Wiley & Sons, Ltd., vol. 32(1), pages 142-171, January.
    2. Moretti, Enrico & Wilson, Daniel J., 2014. "State incentives for innovation, star scientists and jobs: Evidence from biotech," Journal of Urban Economics, Elsevier, vol. 79(C), pages 20-38.
    3. Neumark, David & Simpson, Helen, 2015. "Place-Based Policies," Handbook of Regional and Urban Economics, Elsevier.
    4. repec:bla:jfinan:v:72:y:2017:i:3:p:1039-1080 is not listed on IDEAS
    5. Wall, Howard, 2013. "Robbing Peter to Pay Paul: The Employment Effects of the Missouri Quality Jobs Program," MPRA Paper 50605, University Library of Munich, Germany.
    6. repec:sae:ilrrev:v:70:y:2017:i:5:p:1111-1145 is not listed on IDEAS
    7. David Neumark, 2016. "Policy levers to increase jobs and increase income from work after the Great Recession," IZA Journal of Labor Policy, Springer;Forschungsinstitut zur Zukunft der Arbeit GmbH (IZA), vol. 5(1), pages 1-38, December.
    8. David Neumark & Diego Grijalva, 2017. "The Employment Effects of State Hiring Credits," ILR Review, Cornell University, ILR School, vol. 70(5), pages 1111-1145, October.
    9. J. David Brown & John S. Earle, 2017. "Finance and Growth at the Firm Level: Evidence from SBA Loans," Journal of Finance, American Finance Association, vol. 72(3), pages 1039-1080, June.
    10. Brown, J. David & Earle, John S., 2013. "Do SBA Loans Create Jobs?," IZA Discussion Papers 7544, Institute for the Study of Labor (IZA).
    11. David Neumark & Diego Grijalva, 2013. "The Employment Effects of State Hiring Credits During and After the Great Recession," NBER Working Papers 18928, National Bureau of Economic Research, Inc.

    More about this item

    Keywords

    State and local economic development policy; tax incentives; fiscal impact analysis; labor market benefits; regional multipliers;

    JEL classification:

    • R11 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Regional Economic Activity: Growth, Development, Environmental Issues, and Changes
    • R23 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - Regional Migration; Regional Labor Markets; Population
    • R28 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - Government Policy
    • R30 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - General
    • R58 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Regional Government Analysis - - - Regional Development Planning and Policy
    • H70 - Public Economics - - State and Local Government; Intergovernmental Relations - - - General

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