The Uselessness of Economic Development Incentives, The Atlantic Cities, December 7, 2012

By Richard Florida

This week, the New York Times ran an important series of articles on state and local incentives to business. The reporting was terrific, but even better is the data set the Times put together on the scale and scope of these incentives. The paper points out that its reporters spent some 10 months compiling data from states, cities, and counties.

All told, states, cities, and counties give away some $80 billion to companies each year, including both expenditures and tax abatements, according to the Times' estimates. . . .

. . .  Our biggest takeaway: there is virtually no association between economic development incentives and any measure of economic performance.   (Emphasis added.) We found no statistically significant association between economic development incentives per capita and average wages or incomes; none between incentives and college grads or knowledge workers; and none between incentives and the state unemployment rate. . . .

. . .  The broad body of evidence on incentives, including the Times series, finds that incentives do not actually cause companies to choose certain locations over others. Rather, companies typically select locations based on factors such as workforce, proximity to markets, and access to qualified suppliers, and then pit jurisdictions against one another to extract tax benefits and other incentives.  . . .

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Maybe Virginia and Fairfax County should be putting more taxpayer money into education and transportation than in to the pockets of corporations that would probably come here anyway.  If this article and the research behind it have merit, those investments of taxes would have a greater payoff in terms of greater economic growth.