What are the trade-offs states make when offering economic development incentives to private businesses?

Prof. Nathan Jensen discussed this and more on Tuesday, November 13th in the 每日大赛网站 College of Business auditorium to a crowd of over 70 attendees.

Jensen is a Professor in the Department of Government at the University of Texas-Austin. He teaches courses and conducts research on government economic development strategies and business-government relations, among other things. He is a coauthor of the book with Edmund J. Malesky of Duke University. The book focuses on political incentives for economic subsidies.

Jensen explained that voters tend to give politicians credit for luring businesses through these incentive programs although they can be 鈥渆xpensive, distorting and ineffective.鈥�

However, voter approval for these programs declines once they鈥檙e shown some of the tradeoffs.

For example, support for using property tax exemptions decreases when people are also asked to consider that this would lower tax revenues that support schools. 聽

Jensen said:

Voters love the use of incentives to bring jobs until you show them the costs. I don鈥檛 mean the dollar costs. I mean…what are the tradeoffs?鈥�

Speaking of tradeoffs, here鈥檚 some of the alternative programs Arkansas could fund with the money it鈥檚 appropriated to Arkansas鈥檚 鈥淨uick Action Closing鈥� economic development incentive fund since 2007:

Jensen concluded his remarks with noting that such incentives rarely change firms鈥� behavior even though all states engage in such policy.

Jensen said:

Just because another state does something that鈥檚 stupid, it doesn鈥檛 mean you should too. There are unique things about Arkansas and there鈥檚 reasons why firms want to be here. There are reasons why firms want to be elsewhere. You just have to know that very rarely these incentives change firms鈥� investments.鈥�

You can watch a video presentation summarizing Jensen鈥檚 research . A video recording of Jensen鈥檚 talk will be uploaded to the soon.

New Policy Review

Jensen鈥檚 visit wasn鈥檛 the only big news related to incentives on Tuesday. The Arkansas Center for Research in Economics released a new policy review entitled Government Accountability: 5 Fixes for Arkansas鈥檚 Quick Action Closing Fund by ACRE Policy Analyst Jacob Bundrick last week.

The review outlines five ways Arkansans can improve the transparency and accountability of the program.

The five reforms include:

• Improving reporting standards of the state鈥檚 use of the QACF
• Making clawback agreement formulas public and void of renegotiation
• Limiting the value of subsidies awarded on a per-job basis
• Paying subsidies awarded as project targets are achieved
• Capping the number of QACF projects allowed in any given year

For a one-page summary of Bundrick鈥檚 research on the QACF, go here. The full text of the policy review can be found here.

For more of ACRE鈥檚 research on targeted incentives, go here.