Research ought to prompt a rethink on incentives in North Carolina

Over the course of 2019, Gov. Roy Cooper approved $146 million in corporate giveaways under the Job Development Investment Grant (JDIG) program and One North Carolina (OneNC) fund.

peer review protestJohn Hood wrote today about upcoming research about the economic effects of tax incentives to specific companies or industries for economic development. The study uses a unique, comprehensive data set and reinforces what other studies have found.

Hood wrote:

Scholars from across the political spectrum have been studying such programs for decades and usually reach the same conclusions. First, targeted tax incentives don’t produce much in the way of net job creation, despite exaggerated claims to the contrary. Second, tax incentives flow disproportionately to places with lower unemployment rates and higher average incomes.

In a new study to be published this year in the Journal of Economic Perspectives, economists Cailin Slattery of Columbia University and Owen Zidar of Princeton University provide additional support for these propositions. While incentives may sometimes influence location decisions for recipient companies, “we do not find strong evidence that firm-specific tax incentives increase broader economic growth at the state and local level,” Slattery and Zidar write.

Zachary Eanes wrote on it for The News & Observer. He interviewed study co-author Zidar about North Carolina’s incentives:

Zidar, one of the co-authors of the study, said after surveying individual state strategies toward incentives, North Carolina seems to be overly optimistic about the outcomes of companies taking their incentive offerings.

“One thing that was striking about North Carolina,” he said, “is that the estimated spillover, (gross domestic product) and tax revenue effects of these deals seem quite optimistic and much larger than some estimates implied by the economic literature on fiscal multipliers. I’d encourage folks to re-evaluate their assumptions in those assessments and reform incentive provision accordingly.”

Zidar and Slattery defined spillovers as employment effects outside the targeted industry. “Generally speaking, they are indirect economic effects on employment, wages, incomes on those who are not directly employed by the firm receiving incentives,” Zidar said.

Tyler Dukes at WRAL has documented this “optimism” over several years, finding that about 37 percent of the projects failed to create even one single job, and only 42,600 jobs out of announced 81,800 jobs (just over half) were actually created.

The research into economic development incentives is clear — and it’s consistent with real-time results in North Carolina. What’s also clear is that North Carolina needs a broader debate about corporate welfare.

Jon Sanders / Director of Regulatory Studies

Jon Sanders studies regulatory policy, a veritable kudzu of invasive government and unintended consequences. As director of regulatory studies at the John Locke Foundation, Jo...

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