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

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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File URL: http://research.upjohn.org/cgi/viewcontent.cgi?article=1181&context=up_workingpapers
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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 10-164.

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Date of creation: Mar 2010
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Handle: RePEc:upj:weupjo:10-164
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  1. 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.
  2. 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.
  3. Bruno S. Frey & Alois Stutzer, 2001. "What Can Economists Learn from Happiness Research?," CESifo Working Paper Series 503, CESifo Group Munich.
  4. 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.
  5. Timothy J. Bartik, . "Solving the Problems of Economic Development Incentives," Upjohn Working Papers and Journal Articles tjb2005gc, W.E. Upjohn Institute for Employment Research.
  6. 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 574-82, November.
  7. George I. Treyz & Dan S. Rickman & Gang Shao, 1991. "The REMI Economic-Demographic Forecasting and Simulation Model," International Regional Science Review, SAGE Publishing, vol. 14(3), pages 221-253, December.
  8. 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.
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