The Employment Effects of Tax Subsidies for the Construction of Amazon Facilities

14 Pages Posted: 30 Mar 2023 Last revised: 26 Apr 2023

See all articles by Ike Brannon

Ike Brannon

The Jack Kemp Foundation

Matthew Winden

UW-Whitewater

Date Written: April 26, 2023

Abstract

States and local governments have long used a wide variety of tax breaks and direct subsidies to attract new employers to their area or retain current ones despite the fact that the efficacy of these incentives are tenuous.

In recent years a number of local governments have attempted to lure Amazon fulfillment centers to their communities by offering property tax exemptions, corporate tax relief, or direct subsidies if they were to locate operations within their jurisdiction. Over the last two decades these subsidies have totaled over $5 billion. The goal is to bring well-paying jobs to their communities and thereby stimulate the local economies.

We obtained a data set containing the relocation subsidies provided to Amazon in the U.S. and used data on regional employment, wages, and economic activity to estimate the efficacy of these subsidies at creating jobs. Our analysis suggests that these subsidies have been largely ineffective at creating jobs.

We estimate that, on average, governments spend nearly $43,000 for each job created via an Amazon fulfillment center subsidy, which is well above the annual wage at such facilities. Our analysis suggests that the cost to the government to create a private sector job is well above what the proponents of these subsidies typically claim. We conclude that counties and municipalities should pursue job growth by improving the business and social environment of their community rather than targeting specific companies to provide direct subsidies.

Keywords: business tax subsidies, job-creation incentives, government planning

JEL Classification: P43, H71

Suggested Citation

Brannon, Ike and Winden, Matthew, The Employment Effects of Tax Subsidies for the Construction of Amazon Facilities (April 26, 2023). Available at SSRN: https://ssrn.com/abstract=4394550 or http://dx.doi.org/10.2139/ssrn.4394550

Ike Brannon (Contact Author)

The Jack Kemp Foundation ( email )

Matthew Winden

UW-Whitewater ( email )

800 W. Main
Whitewater, WI 53190
United States

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