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Wooing Companies to Move: Are Business Incentives Worth the Cost?

Economic development incentives aimed at attracting companies to a region have been a defining feature of many regional economic growth strategies. Are they worth it?

The high-profile negotiations for Amazon’s second headquarters in 2018 serve as a prominent example of policy interest and substantial resources related to these incentives.

In 2015, state and local businesses incentives in the United States totaled nearly $45 billion, and most of these incentives were in the form of job creation tax credits. As of 2019, some estimates place the total annual value of incentives closer to $90 billion. Yet business incentives largely do not produce strong positive gains on firm-level and broader economic outcomes – and they can impede local entrepreneurship and redirect public funds from other activities.

This brief explores questions like:

  • How to use incentives to attract existing businesses from other locations to a region?
  • What is the cost of business incentives?
  • Are the benefits of incentives worth the cost?
  • Do incentives to attract existing businesses to a region mean sacrificing support for local entrepreneurs?
  • What are the implications for policymakers?