Do business tax incentives contribute to a divergence in economic growth?

Abstract

A lack of detailed data on state tax incentive programs has limited the assessment of their economic impacts. However, in 1987, the Nebraska legislature, as part of its new business tax incentive initiative, required that the state Department of Revenue collect data on all business tax incentive agreements and report findings yearly. Nebraska's legislative mandate produced a unique data set for assessing the impact of a business tax incentive program. Using these data, this article evaluates business tax incentives across Nebraska's 93 counties during 1987 to 1995 and concludes that qualifying business investment (a) had a positive and statistically significant impact on economic growth for low-unemployment counties, (b) had no statistically significant impact on economic growth for high-unemployment counties, and (c) tended to be undertaken in areas with historically higher investment activity, thus contributing to greater economic performance differences among counties in the state.