MINOT, N.D. — Many communities in North Dakota offer tax incentives to lure jobs and construction.
Many of these communities have even formed and funded public/private partnerships, like economic development corporations, to facilitate these incentives.
Yet, according to a new paper from researchers at Princeton and Columbia Business School, there is "no evidence" that tax incentives doled out by public officials to specific companies result in broader economic growth.
"While we find some evidence of direct employment gains from attracting a firm, we do not find strong evidence that firm-specific tax incentives increase broader economic growth at the state and local level," the researchers wrote in a summary of their findings.
Per the study, in 2014, roughly a third of all economic development spending by states — an amount totaling approximately $7 billion — "went to .0072% of new firms and 1.41% of all jobs created by those firms."
Despite meager results, which are eternally exaggerated and championed by an alliance of elected officials, private business organizations, public/private economic development corporations, and often local media, spending on economic development subsidies is growing.
Presently, per the Princeton/Colombia study, more than $30 billion per year is being spent on these subsidies.
Critics (myself included) of targeted subsidies for businesses — that is to say, subsidies doled out on specific terms to specific people or entities as opposed to broader efforts to keep taxes generally low — will be tempted to crow at these findings.
Yet despite their apparent veracity, they don't necessarily undermine the argument we often hear from proponents of this policy: If a specific community stops offering incentives, they'll lose out on investments which will inevitably flow to communities which do offer them.
That is the rock-and-a-hard-place of economic development policy.
Economic development policies aren't terribly effective because pretty much every community offers them. Special treatment under the tax code isn't all that special when pretty much every community is offering it. It's a given, meaning other factors such as labor force and weather often matter more.
Because of that ubiquity, communities may not be able to stop offering incentives. Offering incentives may not make a community special, but not providing them certainly would, and not in a way that would attract growth.
Thus we are stuck in a sort of arms race. Every year the pile of billions states and local communities offer for economic development subsidies gets bigger, as local leaders try to stand out from the pack, and none dare stop lest their community get left in the dust.
What we need is a sort of START (Strategic Arms Reduction Treaty) among the states for economic development incentives, but that doesn't seem to be in the offing.
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Rob Port, founder of SayAnythingBlog.com, a North Dakota political blog, is a Forum Communications commentator. Listen to his Plain Talk Podcast and follow him on Twitter at @RobPort.