Transcript Slide 1
Industrial Policies
and
U.S. State Economic
Development Programs
James Alm and David L. Sjoquist
1
Goal of Industrial Policy
Jobs?
More productive economy?
2
Two Divergent Views
Growth/development requires
substantial government intervention
Government is the problem
3
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.”
4
Government Role
Provide information
Coordination externalities
5
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
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
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
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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