From 2005 to 2018, North Carolina provided over $404 million in subsidies (tax credits and grant payments) to film production companies. A new study from Western Carolina University’s Center for the Study of Free Enterprise asks “What Do Film Incentives Mean for North Carolina’s Economy?”
The study was produced by John Charles Bradbury, a professor of economics at Kennesaw State University and faculty affiliate with the Bagwell Center for the Study of Markets and Economic Opportunity.
Bradbury looks at the academic literature on state film incentives and their economic impacts. Here is a summary of those findings:
- Studies on return on investment through taxes (if positive, it would mean “each dollar spent on film subsidies generated more than a dollar for state government”) were finding negative returns (most far less than a dollar) in film subsidies.
- Studies on location, industry agglomeration, and employment effects also failed to find strong evidence of developing a lasting film industry or strong effects on film employment.
- As for stimulating economic activity in the states, Bradbury found that “Overall, film incentives were not associated with the size and growth of state economies.”
“In summary,” Bradbury found:
researchers do not find film incentives to be strongly correlated with film-industry activity, size, stability, or employment in states. Furthermore, film incentives do not appear to boost state economies.
The findings are consistent across many studies using a variety of empirical methods, which indicates a strong academic consensus that film incentives are impotent as an economic-development tool.
With respect to North Carolina, Bradbury found:
- Incentives may “motivate some filming in North Carolina,” but film productions choose North Carolina for many reasons, such that “subsidies went to production companies without generating many jobs.”
- Studies of North Carolina’s film incentives, consistent with other analyses of film incentives programs, fail to demonstrate “strong positive returns claimed by [incentives’] proponents”
- They include a 2017 study by economists Mark Owens and Adam Rennhoff, which estimated the return on investment for North Carolina’s program was 22 cents on the dollar; analysis by the N.C. General Assembly’s Fiscal Research Division in 2013, which estimated it at 23 cents per dollar; and analysis from Fiscal Research correcting errors in the industry study, which estimated it at 61 cents per dollar [as pointed out here, Fiscal Research acknowledged a key limitation in their review in that they did not account for opportunity costs, meaning their estimate was still too high]
- A counterfactual analysis of “how the state economy might have performed absent its film incentive” indicated that “North Carolina’s economy was not improved by its film incentives and that it might be worse off.”
In conclusion, he wrote:
North Carolina’s film incentives, which have cost the state over $400 million, do not appear to have delivered the promised economic boost. For this reason, policy makers may wish to reconsider the state’s commitment to the incentives.
For more information on North Carolina’s film production incentives, see the following:
- The John Locke Foundation’s Policy Position on film grants
- Discussion of recent research arguing that film incentives create an extortive political economy
- Discussion of recent research showing that film incentives only benefit outside film production companies and should be tightly limited even if they are intended to boost the state’s film industry without respect to the overall economy
- Caution that recipients are notorious for threatening to refuse incentives as a way of extorting social policy choices that align with their own political preferences
- The 2012 Carolina Cronyism report on North Carolina’s film incentives