Targeted economic incentives: An analysis of state fiscal policy and regulatory conditions

Abstract

Economic development incentives by state and local governments have been shown to have little positive economic effect on employment or growth. Using a political economy approach, we investigate the characteristics associated with fiscal conditions and public policies within a state that affect if a state uses targeted economic development incentives. Using data from 1993-2014 from Good Jobs First, we employ a Poisson model to investigate whether states with budget issues, high tax and regulatory burdens, and poorly trained labor are offering targeted incentives to potentially offset costly economic conditions. Our results indicate that unemployment rates, fiscal policy conditions, and individual income tax burden explain the granting of targeted incentives by local governments.