Economic Development Tax Incentives: A Review of the Perverse, Ineffective, and Unintended Consequences

22 Pages Posted: 4 May 2018

See all articles by Peter Calcagno

Peter Calcagno

College of Charleston - Department of Economics

Frank L Hefner

College of Charleston - Department of Economics

Date Written: January 3, 2018

Abstract

Did you know that some lucky companies have agreements with state and local governments to pay less in taxes than their competitors? These deals are called “economic development tax incentives,” and they are all justified in the name of creating jobs. But do they? Is it the job of the government to decide which businesses succeed and which ones fail? How do these deals affect political contributions? This chapter reviews the consequences of such targeted tax incentives, showing how these deals hurt taxpayers and providing policy recommendations that would treat all businesses equally. Key takeaways: (1) Governments sometimes take taxpayers’ money and give it to a few favored corporations. (2) If states are going to use targeted economic development tax incentives, disclosing their costs would improve transparency.

Keywords: taxation, tax policy, government favoritism, cronyism, tax incentives

JEL Classification: H2, H7, H71

Suggested Citation

Calcagno, Peter and Hefner, Frank L, Economic Development Tax Incentives: A Review of the Perverse, Ineffective, and Unintended Consequences (January 3, 2018). Excerpt from Adam J. Hoffer and Todd Nesbit, eds., For Your Own Good: Taxes, Paternalism, and Fiscal Discrimination in the Twenty-First Century. Arlington, VA: Mercatus Center at George Mason University, 2018., Available at SSRN: https://ssrn.com/abstract=3173791

Peter Calcagno (Contact Author)

College of Charleston - Department of Economics ( email )

66 George Street
Charleston, SC 29424
United States

Frank L Hefner

College of Charleston - Department of Economics ( email )

5 Liberty Street
Charleston, SC 29401
United States
+1 843 953 8111 (Phone)

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