The Political Economy of State-Provided Targeted Benefits

38 Pages Posted: 7 Jun 2018

See all articles by Christopher J. Coyne

Christopher J. Coyne

George Mason University - Department of Economics; George Mason University - Mercatus Center

Lotta Moberg

William Blair

Multiple version iconThere are 2 versions of this paper

Date Written: 05/16/2014

Abstract

The governments of American states often attempt to incentivize businesses to locate with in their borders by offering targeted benefits to particular industries and companies. These benefits come in many forms, including business tax credits for investments, property tax abatements, and reductions in the sales tax. Despite good intentions, policymakers often overlook the unseen and unintended negative consequences of targeted-benefit policies. This paper analyzes two major downsides of these policies: (1) they lead to a misallocation of resources, and (2) they encourage rent-seeking and thus cronyism. We argue that these costs, which are often longer-term and not readily observable at the time the targeted benefits are granted, may very well outweigh any possible short-term economic benefits.

Suggested Citation

Coyne, Christopher J. and Moberg, Lotta, The Political Economy of State-Provided Targeted Benefits (05/16/2014). MERCATUS WORKING PAPER, Available at SSRN: https://ssrn.com/abstract=3191326 or http://dx.doi.org/10.2139/ssrn.3191326

Christopher J. Coyne (Contact Author)

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Lotta Moberg

William Blair ( email )

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United States
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HOME PAGE: http://https://www.williamblairfunds.com/macro/

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