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Are Local Economic Development Incentives Effective in an Urban Area?

California State University, Public Policy and Administration Working Paper No. 99-03

20 Pages Posted: 6 Dec 1999  

John E. Anderson

University of Nebraska at Lincoln - Department of Economics; Lincoln Institute of Land Policy

Robert W. Wassmer

California State University, Sacramento - Department of Public Policy & Administration

Date Written: November 18, 1999

Abstract

Economic development incentives are offered by local governments in the United States to retain or attract manufacturing and/or commercial enterprises. We are concerned with "first wave" incentives that began in the United States in the 1970s and continue until today. These include: manufacturing or commercial property tax abatements, tax increment finance authorities, downtown development authorities, and industrial development bonds. The reason that local governments offer these incentives is the perceived benefits that non-residential enterprises bring to a jurisdiction. State governments have an appropriate interest in the creation of local incentive programs if such incentives are effective at retaining and redirecting economic activity to places where there is a public benefit to the state arising from the creation of jobs there, as compared to elsewhere. So the natural question to ask is, given the way that they are currently structured, what are the effects of local incentive use in a metropolitan area? Do they have an impact on local property values, employment, and poverty rates that offer a public benefit to the entire metropolitan area, or are they simply giveaways to business that could be better accomplished through direct cuts in business taxation? The purpose of this paper is to answer these questions by summarizing some of the findings from our forthcoming book, "Bidding for Business: The Efficacy of Local Incentives in a Metropolitan Area" (Upjohn Institute, 2000). In this paper we offer tabular and regression-based simulation evidence that leads to public policy suggestions regarding the future use of local incentives in U.S. metropolitan areas.

JEL Classification: H0, R5

Suggested Citation

Anderson, John E. and Wassmer, Robert W., Are Local Economic Development Incentives Effective in an Urban Area? (November 18, 1999). California State University, Public Policy and Administration Working Paper No. 99-03. Available at SSRN: https://ssrn.com/abstract=195148 or http://dx.doi.org/10.2139/ssrn.195148

John E. Anderson

University of Nebraska at Lincoln - Department of Economics ( email )

Lincoln, NE 68588-0489
United States
402-472-1190 (Phone)
402-472-9700 (Fax)

Lincoln Institute of Land Policy ( email )

113 Brattle Street
Cambridge, MA 02138-3400
United States

Robert William Wassmer (Contact Author)

California State University, Sacramento - Department of Public Policy & Administration ( email )

Sacramento, CA 95819-6081
United States
916-278-6304 (Phone)
916-278-6544 (Fax)

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