Policy makers spend billions of dollars annually on tax incentives for economic development, but no state ensures that policy makers rely on good evidence about whether these investments deliver a strong return. Often, states that have conducted rigorous evaluations of some incentives virtually ignore others or assess them infrequently. Other states regularly examine these investments, but not thoroughly enough.
The use of these investments appears to have grown substantially. Today, every state has at least one tax incentive program, and most have at least several. Tax incentives are policy choices with significant implications, especially at a time when most states are trying to rebuild their budgets and many have not regained the private-sector jobs lost during the Great Recession. If states do not base decisions on evidence, they could have less money to spend on other critical services. By not using effective incentives, states could miss opportunities to create jobs and support businesses.
A report by the Pew Center on the States concludes that 13 states are leading the way in generating much-needed answers about tax incentives' effectiveness. Twelve states have mixed results. Half the states have not taken the basic steps needed to know whether their incentives are effective. The study highlights a wealth of promising approaches states have taken to help lawmakers find those answers.