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Research finds incumbent governors release a flood of incentives during election years

John Hood writes this morning in Carolina Journal about the folly of government awarding economic incentives, foolishness that research consistently warns about:

Scholars have been researching these policies for decades. Most of their studies find that states and localities don’t improve their economic outcomes by using incentives. They don’t boost average incomes. They don’t boost job creation. Some people gain. Others lose. In many cases, the losers outweigh the winners.

North Carolina has certainly not bucked the trend of that research. A retrospective review of several years’ worth of economic incentives here found that over one-third of the giveaways didn’t result in even a single new job, and that only a little more than half the promised new jobs came about.

Hood cites two recent studies on the matter:

  • In the Journal of Economic Perspectives, Cailin Slattery of Columbia University and Owen Zidar of Princeton University wrote that “we do not find strong evidence that firm-specific tax incentives increase broader economic growth at the state and local level” and even that “the welfare effects of these subsidies might be negative on average.”
  • In Economic Development Quarterly, the authors also found a negative relationship, this one between incentive programs and business startups, findings they wrote “supports critics who contend that incentives crowd out other economic activity, potentially reducing long-term growth.”

Hood highlighted one finding in particular that Gov. Roy Cooper seemed determined to embody:

One of Slattery and Zidar’s findings, in fact, is that incentive grants tend to spike just as incumbent governors are running for reelection. Good luck convincing politicians not to wield a tool that, in the end, is more about creating job announcements than creating jobs.

As discussed here, in 2019, which was not an election year for the incumbent governor, Cooper pledged $146 million* in incentives grants to individual corporations.

In the election year of 2020, however, Cooper pledged over $519 million. That’s over half a billion dollars — and over three and a half times worse than his giveaways in 2019.


Note
* Should an advocate for free markets and limited government be tempted to use the word “only” here? The deluge of 2019 isn’t made any better by being followed in 2020 by a flood that’s 3.5 times greater. It’d be like downplaying Johnstown in comparison with the Flood of Noah.

Jon Sanders / Research Editor and Senior Fellow, 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...