Do Economic Effects Justify the Use of Fiscal Incentives?

The siting of a large, new firm is often presumed to give rise to significant economic and tax benefits to the community of location. This presumption serves as the basis for the granting of lucrative economic development incentives to footloose businesses. This article examines whether large, mobile firms generate significant net benefits for the region of location. Panel data and nonrandom estimation techniques are applied to a primary database of large firms that made location decisions in the 1980s to explore the impact of location on regional economic performance. The empirical analysis explores different treatment regions (both effects within the county and the metropolitan statistical area [MSA] of location) and different control regions. The results show that large firms fail to produce significant net benefits for their host communities, calling into question the high-stakes bidding war over jobs and investment.

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