Untargeted Incentives and Entrepreneurship: An Analysis of Local Fiscal Policies and Small Businesses in Florida

Hai (David) Guo,Shaoming Cheng

doi:10.52324/001c.8009

Abstract

This paper examines the effects of local taxes and local fiscal expenditures on small businesses in Florida. Our analysis sheds light on the linkage between small business development and local fiscal decisions, which seem to have no obvious or direct connection with targeted business assistance and incentives. Spatial panel regression models are calibrated with county-level tax, expenditure, and social and economic factors for the period of 2008-2013. The estimation results suggest that local tax and expenditure structure and decisions affect the number of small business establishments not only in their “home” counties but also in their neighboring jurisdictions.

Highlights

The geography of new and small businesses, in light of their abilities to innovate and create new jobs, has been extensively examined in terms of the geographic distribution, the social, economic, and policy determinants within and across jurisdictions, and the impacts on wealth and job creation over time and across geography (Acs and Armington, 2006; Audretsch, Dohse, and Niebuhr, 2010; Cheng and Li, 2012)
The Bayesian model selection procedure illustrated in LeSage (2014) suggests that the spatial Durbin error model (SDEM) model (34.8 percent) has a slightly higher posterior model probability compared to the spatially lagged X regression (SLX) (30.8 percent) and the spatial Durbin model (SDM) (34.4 percent) specifications
The “zero sum games” criticism against traditional economic development strategies and targeted incentives has given rise to the home grown entrepreneurship-led economic development paradigm and has reminded us that the “zero sum games” criticism may be applied to excessive governmental incentives intended for small businesses

Summary

Introduction

The geography of new and small businesses, in light of their abilities to innovate and create new jobs, has been extensively examined in terms of the geographic distribution, the social, economic, and policy determinants within and across jurisdictions, and the impacts on wealth and job creation over time and across geography (Acs and Armington, 2006; Audretsch, Dohse, and Niebuhr, 2010; Cheng and Li, 2012). Most recently, Patrick (2016) focused on the most costly and prominent incentive packages, megadeals that often involve subsidies of $75 million or more, and found that successfully recruiting a large, expensive plant may merely induce modest increases in new economic activities and generate no fiscal surplus. Such minimal fiscal/economic impact of targeted economic incentives have been referred to as the “winner's curse” when the winning bid exceeds the intrinsic benefits of attracted megadeal businesses. Governmental incentives and concessions for luring entrepreneurs and prospective business owners, instead of megadeal corporations, in hopes of www.srsa.org/rrs

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