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The Impact of Tax Incentives: Do Initial Economic Conditions Matter?

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  • Ernest P. Goss
  • Joseph M. Phillips

Abstract

Do the returns to business tax incentives differ according to the initial economic conditions of the area providing tax relief? Past research studies have provided conflicting answers to this question. Bartik (1991) concluded that rates of return to business tax incentives are likely to be greater for less affluent areas than for wealthier areas offering equivalent incentives. In contrast, Fisher and Peters (1998) determined that tax incentives tend only to offset higher taxes on businesses located in low income areas. This study examines this issue using a unique data set that allows for a fresh look at this issue. We find that the returns to subsidized investment are greater in lower unemployment and higher income areas. This suggests that tax incentives reinforce pre‐existing economic differences across areas.

Suggested Citation

  • Ernest P. Goss & Joseph M. Phillips, 2001. "The Impact of Tax Incentives: Do Initial Economic Conditions Matter?," Growth and Change, Wiley Blackwell, vol. 32(2), pages 236-250.
    • Handle: RePEc:bla:growch:v:32:y:2001:i:2:p:236-250
    DOI: 10.1111/0017-4815.00158
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    Cited by:

    1. Chang Woon Nam & Doina Radulescu & Doina Maria Radulescu, 2004. "Types of Tax Concessions for Attracting Foreign Direct Investment in Free Economic Zones," CESifo Working Paper Series 1175, CESifo.
    2. Carlianne Patrick, 2014. "The economic development incentives game: an imperfect information, heterogeneous communities approach," The Annals of Regional Science, Springer;Western Regional Science Association, vol. 53(1), pages 137-156, August.
    3. Piotr Ciżkowicz & Magda Ciżkowicz-Pękała & Piotr Pękała & Andrzej Rzońca, 2017. "The effects of special economic zones on employment and investment: a spatial panel modeling perspective," Journal of Economic Geography, Oxford University Press, vol. 17(3), pages 571-605.
    4. Li Zhou, 2014. "Commercial Revitalization In Low-Income Urban Communities: The Holdup Problem And Urban Development Policy," Contemporary Economic Policy, Western Economic Association International, vol. 32(3), pages 545-559, July.
    5. Michael I. Luger & Suho Bae, 2005. "The Effectiveness of State Business Tax Incentive Programs: The Case of North Carolina," Economic Development Quarterly, , vol. 19(4), pages 327-345, November.
    6. Cizkowicz, Piotr & Cizkowicz-Pekala, Magda & Pekala, Piotr & Rzonca, Andrzej, 2015. "The Effects of Polish Special Economic Zones on Employment and Investment: Spatial Panel Modelling Perspective," MPRA Paper 63176, University Library of Munich, Germany.
    7. Goss, Ernie & Wingender Jr., John R. & Torau, Megan, 2007. "The contribution of foreign capital to U.S. productivity growth," The Quarterly Review of Economics and Finance, Elsevier, vol. 47(3), pages 383-396, July.
    8. Zhou, Li, 2012. "Commercial Revitalization in Low-Income Urban Communities: General Tax Incentives vs. Direct Incentives to Developers," Working Papers 2012-4, University of Alberta, Department of Economics.
    9. Megan A. Torau & Ernest Goss, 2004. "The Effects of Foreign Capital on State Economic Growth," Economic Development Quarterly, , vol. 18(3), pages 255-268, August.

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