Transcript Slide 1

Industrial Policies
and
U.S. State Economic
Development Programs
James Alm and David L. Sjoquist
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Goal of Industrial Policy
 Jobs?
 More productive economy?
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Two Divergent Views
 Growth/development requires
substantial government intervention
 Government is the problem
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 Rodrik: “…embed private initiative in
a framework of public action that
encourages restructuring,
diversification, and technological
dynamism beyond what market forces
on their own would generate.”
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Government Role
 Provide information
 Coordination externalities
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Economic Development
Programs
 Tax Incentives
 Job Tax Credits
 Create minimum number of jobs
 Maintain jobs over time
 Specific industries
 Credit may vary by area of the state
 Many are refundable
 Wage requirements
 Entitlement
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Example: Florida
 $3000 per net new job
 $1000 more if wage > 150% of state
average
 Targeted industries
 Refundable
 Cap of $5 million per applicant
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 Investment Tax Credit
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Minimum investment, and perhaps jobs
Specific industries
New or expanding business
Specified expenses
Credit depends on size of investment
Prior approval required
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Example: Kentucky
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Investment > $100K
Maintain at least 15 new full time jobs
Restricted to manufacturing plants
100% credit of tax liability OR 3% of
employees’ gross wages
 Minimum wage rate required
 Incentive agreement must be approved
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 Negotiated Incentives
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Loans
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R&D
 Tax Credits
 Generally follow Federal R&E definition
of qualified expenses
 Credit rates vary
 Ceilings on credits for firm and total
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R&D
 University-based program
 Example: Georgia Research Alliance
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Eminent Scholars
R&D Labs and Equipment
Technology Partnership Fund
Technology Incubators
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Specialized Training
 State may provide training or share
the cost
 Specific industries
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Tourism
 General promotion of tourism
 Some states provide incentives
 Limited types of tourism
 Sales tax exemptions
 Tax credits for investment in tourist
facilities
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Film and Video
 Incentives
 Credits equal to a % of qualified expenses
 Waivers of sales tax
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Film and Video
 Example: Louisiana
 Investment tax credit
 25 percent
 Transferable
 Employment tax credit
 10% of payroll of state residents
 20% if production costs > $1 million
 Sales tax exemption if expenditures >
$250,000
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Accountability
 Little information about incentive
 A few states have reporting
requirements
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Lessons/Conclusions
 Goal seems to be job growth
 Few states focus on a small set of target
industries
 Most states have a library of programs
 States spent (waste?) a lot of money on
incentives
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