Discussion Paper

State business tax incentives: examining evidence of their effectiveness

Abstract: State governments commonly use business tax credits to promote economic development. Whether these incentives are successful at generating new economic activity - and whether they do so in a cost-effective manner - are important concerns, particularly in times of fiscal and economic stress. This paper explores the use and effectiveness of a selected group of incentives, namely tax credits geared toward capital investment, research and development, job creation, and film production. The paper examines the various credits offered by New England states and their structural features, and reviews and analyzes the available evidence on the effectiveness and cost-effectiveness of these types of incentives. The analysis reveals the challenges entailed in measuring the impact of business tax credits and the need for both analysts and policymakers to consider those challenges carefully when using existing studies to inform the tax credit debate.

Keywords: Tax incentives; Business tax; Tax incentives - New England; Business tax - New England;

Bibliographic Information

Provider: Federal Reserve Bank of Boston

Part of Series: New England Public Policy Center Discussion Paper

Publication Date: 2009

Number: 09-3