When a state or local government offers a tax incentive to a business for locating or expanding in its jurisdiction, cross-cutting motives are at work. For the business, it’s a chance to get a tax break–maybe for a business decision that would have happened anyway. For the government, it’s a chance to show that it’s “doing something” to help the economy and to claim credit for the location or growth of certain businesses–even if those are business decisions that would have happened anyway. The issue of the extent to which tax incentives actually alter business decisions or help a local economy overall is difficult to sort out, but for any social scientist, the starting point is to have some actual data.

Timothy J. Bartik has compiled “A New Panel Database on Business Incentives for Economic Development Offered by State and Local Governments in the United States” (Upjohn Institute, February 2017). For a short overview of this work, see Bartik’s article “Better Incentives Data Can Inform both Research and Policy” in the Upjohn Institute 
Employment Research newsletter for April 2017. As Bartik writes in the newsletter:

“Using data from 1990 to 2015, the “Panel Database on Incentives and Taxes” estimates marginal business taxes and business incentives for 45 industries in 33 states; the industries compose 91 percent of U.S. labor compensation, and the states produce over 92 percent of U.S. economic output. The database has data for a new facility starting up in each of 26 “start years.” Compared to prior studies, the new database provides more incentive details, such as how incentives are broken down by different incentive types (e.g., job creation tax credits vs. property tax abatements), and the time pattern by which incentives are paid out over a facility’s life cycle.” 

For some questions, it can be hard to extract an answer from data, and involved a lot of assumptions and calculations. But for some questions, the data comes close to telling the story. 

For example, are state and local tax incentives for business rising or falling in the last 25 years? Here’s a figure. Here’s a time trend in business incentives, expressed as a percentage of the gross stat and local taxes paid by business. Clearly, the level is dramatically higher than 25 years ago. Bartik notes that a big reason for the jump around the year 2000 is the expansion of the “Empire Zone” incentives in New York. 

Of course, this overall increase conceals differences across states.

“From 2001 to 2007, big increases in incentives occurred in New Mexico, Missouri, Indiana, North Carolina, Nebraska, and Texas. This includes some Southern and Midwest states plus the Great Plains state of Nebraska and the southwestern state of New Mexico. Over this same time period, New York significantly reduced incentives, from 5.79 percent to 5.20 percent, although New York incentives remained high. From 2007 to 2015, big incentive increases occurred in Tennessee, New Jersey, Wisconsin, Minnesota, Colorado, Oregon, and Arizona. What is noteworthy here is that some states that previously had very low incentives, such as Tennessee, Wisconsin, Minnesota, Colorado, and Oregon, began to use incentives at a much higher level. But over this same time period, big decreases in incentives occurred in New York, Michigan, and Missouri. The big decreases in New York were due to the demise of the Empire Zone program. In Michigan, Governor Rick Snyder jettisoned the expensive MEGA incentive program as part of a policy package that rolled back general business taxes. The Missouri decrease is due to the Quality Jobs program (a JCTC) being replaced with a less costly job creation tax credit, Missouri Works.”