On Cascade: Creating an Environment for Entrepreneurship

Tax incentives—often used to attract or retain existing businesses—aren’t always the best way to stimulate economic growth.

In this article for Cascade, a publication of the Federal Reserve Bank of Philadelphia's Community Development Studies and Education Department, Kauffman Foundation Policy Director Jason Wiens and researchers Emily Fetsch and Chris Jackson, discuss how the current practice of incentive programs might be improved and offer alternative strategies that support the creation and growth of new businesses that have proven to create jobs.

Read an excerpt of the post below.

Are Tax Incentives the Answer to More Job Creation?

Today, with all the attention given to entrepreneurship, one might assume that the state of entrepreneurship in America is strong. Unfortunately, many factors indicate otherwise. Like the economy as a whole, entrepreneurship took a hit during the Great Recession.

But even before the recent economic downturn, the rate of new business creation in the United States was on the decline. This decrease in entrepreneurship has real consequences for the economy. Yet, as policymakers have sought to spur job creation, significant financial resources and time have been invested in a zero-sum game of attraction.

For example, a common way in which many state and local elected officials have sought to create jobs has been to offer special tax incentives to firms that either remain in or move company operations to their jurisdictions.

When states or cities compete for companies to relocate within their boundaries, they most often are competing for companies with existing jobs rather than competing for companies that will create new jobs. From a macro perspective, this reshuffling or reordering of jobs does little to nothing to increase overall U.S. economic growth.

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