domestic market, geography, etc.) or change very slowly over time (e.g., levels of human capital, levels of economic development, etc.), one of the few immediate policies that governments can control are firm-specific location incentives to attract investment. Although the competition for direct investment is global, our research design exploits the excellent laboratory that the United States provides for studying the dynamics of fiscal competition. Most U.S. states now have dedicated agencies for the facilitation of domestic and international investment, and many U.S. municipalities now offer location-based incentives. Technically defined as any exclusion, or exemption from a tax liability, offered as an enticement to engage in “deduction, a specified activity (such as investment) for a certain period,” incentives most often take the form of tax holidays and abatements. In a survey of U.S. city and county managers in 1999, 68% of localities used at least one form of incentive, though many used several different forms. This number increased to 95% in 2009. In all, U.S. state and municipal governments now spend approximately $46.8 billion per year on location incentives to attract foreign and domestic investors and retain existing investment. Unfortunately, oversight of these programs has not kept pace with the growth in their use (Thomas 2007). Many of the state incentive programs are opaque, providing little information on allocation decisions. For incentive programs in U.S municipalities, a survey conducted by the International City/County Management Association (ICMA) in 2009 found that only 55% of locations had mandatory performance qualifications for companies receiving incentives, such as the number of jobs created or amount of capital investment provided, while 28% performed no benefit analysis at all. Although state investment incentive programs have more oversight, there remains considerable variation in their reporting and performance requirements (Kansas Inc. 2009). This lack of information makes it difficult to distinguish if these programs are created for sincere
domestic market, geography, etc.) or change very slowly over time (e.g., levels of human capital, levels of economic development, etc.), one of the few immediate policies that governments can control are firm-specific location incentives to attract investment. Although the competition for direct investment is global, our research design exploits the excellent laboratory that the United States provides for studying the dynamics of fiscal competition. Most U.S. states now have dedicated agencies for the facilitation of domestic and international investment, and many U.S. municipalities now offer location-based incentives. Technically defined as any “deduction, exclusion, or exemption from a tax liability, offered as an enticement to engage in a specified activity (such as investment) for a certain period,” incentives most often take the form of tax holidays and abatements. In a survey of U.S. city and county managers in 1999, 68% of localities used at least one form of incentive, though many used several different forms. This number increased to 95% in 2009. In all, U.S. state and municipal governments now spend approximately $46.8 billion per year on location incentives to attract foreign and domestic investors and retain existing investment. Unfortunately, oversight of these programs has not kept pace with the growth in their use (Thomas 2007). Many of the state incentive programs are opaque, providing little information on allocation decisions. For incentive programs in U.S municipalities, a survey conducted by the International City/County Management Association (ICMA) in 2009 found that only 55% of locations had mandatory performance qualifications for companies receiving incentives, such as the number of jobs created or amount of capital investment provided, while 28% performed no analysis at all. Although state investment incentive programs have more oversight, there remains considerable variation in their reporting and performance requirements (Kansas Inc. 2009). This lack of information makes it difficult to distinguish if these programs are created for sincere benefit
JensenMaleksyWalsh_Working-Paper.docx