Abstract
The biggest issue facing the United States in recent years is the poor economy, most dramatically illustrated by the lack of job creation. The lack of jobs is not a phenomenon that began with the 2007-2009 Great Recession and sluggish recovery, but has been a feature of the entire early 21st Century. There are federal fiscal and monetary policy responses that would help lift job creation. Yet, in lieu of federal efforts, state and local officials have aggressively promoted job creation by a host of schemes including cluster-based policies and tax incentives and subsidies. While data are hard to come by, anecdotal evidence suggests that state and local efforts to lure businesses with generous inducements have escalated to a feverous pitch. The distinctive feature of such efforts is that governments are increasingly more inclined to offer these inducements to individual firms or industries as opposed to general business tax cuts for all firms, in which the former is a case where officials are “picking winners,” while in the latter, markets and relative comparative advantage determine business location. State and local officials justify such “picking winners” as a way to fend off competition in neighboring jurisdictions and as a way to make their region more competitive. In this paper I examine whether these efforts have helped matters.
Highlights
There are two main themes in Southern Regional Science Association (SRSA) Fellows Addresses
Another rule for good development policy is to have firms pay for net development costs, whether environmental, infrastructure, etc., so that their entry costs are not incurred by the broader economy, which would make the region less competitive
It is not surprising that voters and residents have called upon their local politicians and policymakers to foster job growth in their communities and local regions
Summary
There are two main themes in Southern Regional Science Association (SRSA) Fellows Addresses. In lieu of federal efforts, state and local officials have aggressively promoted job creation by a host of schemes including cluster-based policies and tax incentives and subsidies. Partridge and Olfert further describe principal-agent problems in which voters may not fully understand the costs, which are often hidden, even as politicians take credit for the perceived benefits Another problem identified by economists is that targeted subsidies and tax incentives create a culture of rent-seeking rather than a culture of entrepreneurship, in which “harvesting politicians” or “harvesting economic development officials” trump innovation and productivity enhancements. This rent seeking follows the pattern that “losers” know how to pick governments and/or pick their policies (Baldwin and Robert-Nicoud, 2007). I will conclude with a discussion of what the proper role of government is in state and local economic development
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