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  • Garrett Tyson

Tax Incentives Are Not A Strategy

Updated: Mar 10, 2020

Tax incentives are one of the most talked about economic development tools, but are often not well understood. This is especially true concerning whether any particular implementation of an incentive program will produce a net economic benefit in the long-run. While incentives should not be viewed as either categorically good or bad as a policy tool, they must be well understood if they are to be employed in ways that yield reliable and effective returns.


Economic development success is within the reach of every community, regardless of size and wealth, if they are simply willing to take the time to deliberate about what it means and how to make it work within their current situation.

In March of 2018, the Brookings Institute's Metropolitan Policy Program published findings from a study of four major metropolitan areas’ utilization of tax incentives. The study found mixed-results about the effectiveness of the use of incentives (findings that are not uncommon when evaluating local government use of economic incentives for purpose of business attraction) and recommend that communities take a more thoughtful approach.


The reason for this is not that economic developers and public officials do not care, it is that these things are very complex, and economic analysis is difficult work that not every person is equipped to do effectively. Not having the expertise or the requisite resources to apply incentive tools correctly within the complex and changing circumstances of any particular marketplace, many communities simply defer to opinion leaders in the field of economic development. Often, these opinion leaders are championing the continued and expansive utilization of tax incentives in order to "win deals" and create jobs for the community. These opinion leaders almost always have good intentions, but in economics (as in most other arenas) good intentions are no guaranty of good outcomes.


Every community can avoid the evident pitfalls of tax incentive programs by taking a step back and approaching economic development in a more deliberate fashion.


  • What does it truly mean to "win" at economic development?

  • What does "economic development" mean for our marketplace?

  • How vast is our "local" economy and who else is affected by these decisions? (Hint: it's much larger than you think)

  • Is offering tax incentives a viable way for our community to pursue that?

  • If incentives are appropriate for your community's particular marketplace conditions, does your organization have the resources and expertise to apply them properly?


Opinion leaders are important and watching what other communities are doing can be helpful, but every community must be careful about simply doing a "copy-paste" of what you've see done elsewhere. Economic development success is within the reach of every community, regardless of size and wealth, if they are simply willing to take the time to deliberate about what it means and how to make it work within their current situation. Taking this approach will help to leverage existing capital toward exponential long-term wealth creation that is apparently not being facilitated by most applications of tax incentives.

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