The Impact of Tax Incentives: Do Initial Economic Conditions Matter?

Ernest P. Goss, Joseph M. Phillips

Research output: Contribution to journalArticle

13 Scopus citations

Abstract

Do the returns to business tax incentives differ according to the initial economic conditions of the area providing tax relief? Past research studies have provided conflicting answers to this question. Bartik (1991) concluded that rates of return to business tax incentives are likely to be greater for less affluent areas than for wealthier areas offering equivalent incentives. In contrast, Fisher and Peters (1998) determined that tax incentives tend only to offset higher taxes on businesses located in low income areas. This study examines this issue using a unique data set that allows for a fresh look at this issue. We find that the returns to subsidized investment are greater in lower unemployment and higher income areas. This suggests that tax incentives reinforce pre-existing economic differences across areas.

Original languageEnglish (US)
Pages (from-to)236-250
Number of pages15
JournalGrowth and Change
Volume32
Issue number2
DOIs
StatePublished - Jan 1 2001

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All Science Journal Classification (ASJC) codes

  • Global and Planetary Change

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