Mendeley
JSTOR
GPO
The World Bank
Business, Municipal, Taxes
Who Offers Tax-Based Business Development Incentives?
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Research Findings
City and county governments often compete with one another to attract businesses and thus improve the economic situation of their local residents. Most often this process of attracting business takes the form of a tax-based incentive, including abatement of taxes, tax credits or tax increment financing (TIF) for business or infrastructure enterprises.
A 2011 paper for the National Bureau of Economic Research, “Who Offers Tax-Based Business Development Incentives?” used the existing body of evidence from the International City/County Management Association and the World Tax Database in order to track patterns of tax-based business incentives offers extended by counties and cities in the United States. The paper’s authors are affiliated with the Federal Reserve Bank of Kansas City and the University of Michigan.
The findings include:
- Governments representing poorer communities are more likely to offer business tax incentives. A 10% reduction in household income is associated with a 3.4% increase in likelihood of offering abatements or credits.
- A 10% greater concentration of younger people is associated with a 3.7% higher probability of communities offering tax incentives. Also, those with less than 8% of workers employed in manufacturing offer tax incentives only 48% of the time, whereas communities with more than 18% in manufacturing offer tax incentives 64% of the time.
- An increase of federal corruption crimes by 1 per 100,000 residents is associated with a 2.9% greater chance that a community offers any form of business incentives.
- An increase in the rate at which government officials are convicted of federal corruption of 1 per 100,000 residents is associated with a 5.9% greater probability that a community will offer direct tax reductions rather than tax increment financing.
“American cities and counties frequently offer business development incentives; variations in this practice suggest some of their motives in doing so,” the authors write in the conclusion. “Communities with low incomes, those located close to state borders, and those in states with more troubled political cultures … are most likely to offer business development incentives when they stand to benefit from the resulting business activity and the economic environment.”
Tags: crime, ethics, infrastructure
Teaching Notes
Analysis assignments
Read the issue-related Washington Post article "Study: More corruption means more tax breaks for businesses."
- Reporter's use of the study: Evaluate what the reporter chose to include and exclude from the study. Would the audience have acquired a clear understanding of the study's findings and limits from this article?
- Reporter's use of other material: Assess the material in the article that is not derived from the study. For example, does the reporter place the study in the context of other research and to what effect? Does the reporter include reactions to the study from other researchers or interested parties (e.g., political groups business leaders, or community members) and are their credentials or possible biases made clear?
Read the full paper "Who Offers Tax-Based Business Development Incentives?"
- Summarize the paper in fewer than 40 words.
- Express the paper's key term(s) in language a lay audience can understand.
- Evaluate the paper's limitations. (For example: Do the results conflict with those of other reliable studies? Are there weaknesses in the paper's data or research design?)
Newswriting assignments
- Write a lead (or headline or nut graph) based on the paper.
- Spend 60 minutes exploring the issue by accessing sources of information other than the paper. Write a lead (or headline or nut graph) based on the paper but informed by the new information. Does the new information significantly change what one would write based on the paper alone?
- Interview two sources with a stake in or knowledge of the issue. Be prepared to provide them with a short summary of the paper in order to get their response to it. Write a 400-word article about the paper incorporating material from the interviews.
- Spend additional time exploring the issue and then write a 1,200-word background article, focusing on major aspects of the issue.
2 comments
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