You Don't Always Get What You Want: The Effect of Financial Incentives on State Fiscal Health

31 Pages Posted: 23 May 2019

See all articles by Bruce McDonald

Bruce McDonald

North Carolina State University

John Decker

Public Administration

Brad Johnson

North Carolina State University

Michelle Allen

North Carolina State University

Date Written: April 23, 2019

Abstract

Governments frequently use financial incentives to encourage the creation, expansion, or relocation of businesses within their borders. Previous research on financial incentives have given little clarity as to what impact these incentives may have on the government. While incentives may draw in more economic growth, they also pull resources from the government’s coffers and may commit future funding for public services that benefit the incentivized business. Using a panel of 32 states from 1990 to 2015, we seek to understand how incentives affect a state’s fiscal health. After controlling for the governmental, political, economic, and demographic characteristics of a state, we find that incentives draw resources away from the state. Ultimately, the results show that financial incentives negatively affect the overall fiscal health of a state.

Keywords: Financial Incentives, Fiscal Health, Tax Credits, State Government

Suggested Citation

McDonald, Bruce and Decker, John and Johnson, Brad and Allen, Michelle, You Don't Always Get What You Want: The Effect of Financial Incentives on State Fiscal Health (April 23, 2019). Available at SSRN: https://ssrn.com/abstract=3376991 or http://dx.doi.org/10.2139/ssrn.3376991

Bruce McDonald (Contact Author)

North Carolina State University ( email )

Raleigh, NC 27695
United States
919-515-2481 (Phone)

John Decker

Public Administration ( email )

Hillsborough Street
Raleigh, NC 27695
United States

Brad Johnson

North Carolina State University ( email )

NC
United States

Michelle Allen

North Carolina State University ( email )

Hillsborough Street
Raleigh, NC 27695
United States

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