States use economic development incentives to encourage companies to locate or expand. An incentive has benefits for residents when the economic gains it generates, less its costs and any negative effects, are positive. This data visualization illustrates many of the impacts that incentives can have on government budgets and state economies and shows how those effects are influenced by various policy choices. As policymakers and development officials evaluate their incentives, they should keep these factors in mind.
States use economic development incentives to encourage companies to locate or expand within the state or a community. The
Although most incentives have a net cost to states, even after accounting for
This data visualization illustrates how incentives can affect each of those economic measures and how those impacts are inﬂuenced by four major policy considerations: how the incentive is paid for, what type of businesses it targets, how the program is designed, and what the economic conditions are in the state. It begins with a brief optional walk‑through of the four key policy considerations examined and then asks a series of questions to guide the building of an incentive program. The resulting scenario is compared with a default configuration that represents a fairly well‑designed program with modest positive net effects. This default scenario is intended for comparative purposes only and does not necessarily represent a real or typical incentive.
The interactive is based on an economic model that estimates the impact of business expansions and relocations that include significant upfront capital investments. The model, which was developed by Timothy J. Bartik of the W.E. Upjohn Institute for Employment Research and partially funded by The Pew Charitable Trusts, considers an array of economic and policy factors, many of which are not discussed here. This data visualization focuses on a set of key economic indicators and policy options to demonstrate the complex interplay among program design, business characteristics, and the underlying economy.
- How is the incentive paid for?
Incentives can have positive economic impacts, but they also cost money and must be paid for, either with tax increases, spending cuts, or both, all of which can have negative repercussions.
- Does the incentive target ‘exporters’?
- Does the incentive target high-impact companies?
- Are the recipient companies locally owned?
The economic effects of an incentive depend in part on the characteristics of the company or companies that receive it.
- When do businesses receive the incentives?
- Does the program offer customized business services to small and midsize firms?
Certain designs can produce incentives that deliver more benefits to companies for the same cost to government, increasing their effectiveness.
- How high is local unemployment?
- How readily can housing supply expand to absorb increased demand?
The state of the economy can significantly affect the ultimate impact of an incentive.