The Effects of State and Local Economic Incentives on Business Start-Ups in the United States: County-Level Evidence

Abstract

Even as economic incentives are increasingly used by policy makers to spur state and local economic development, their use is controversial among the public and academics. The authors examine whether state and local incentives lead to higher rates of business start-ups in metropolitan counties. Existing research indicates that start-ups are important for supporting (net) job creation, long-term growth, innovation, and development. The authors find that incentives have a statistically significant, negative relationship with start-up rates in total and for some industries including export-based and others that often receive incentives. The findings support critics who contend that incentives crowd out other economic activity, potentially reducing long-term growth. The authors also find that greater intersectoral job flows are positively linked to total start-ups, consistent with claims of those who advocate for policies that enhance labor market flexibility through reducing barriers to job mobility.

The Impact of Tax Increment Financing on Business Entries and Exits in Iowa

“…This is predictable because not all blocks experience business entries and exits every year. Following the literature (e.g., Partridge et al, 2020), we use Poisson regression to test the effects of TIF on the three outcomes. Figure 8 displays the results using either first-order (left panel) or second-order (right panel) neighboring blocks as comparison blocks.…”

The impact of local government economic development programs on city-level entrepreneurial activity: evidence from Southern California

“…Two recent papers by Partridge et al (2020) and Fazio et al (2020) explore the potential effects of different state and local economic incentives on US county-level start-up activity. Partridge et al (2020) find that these incentives have a negative correlation with start-up rates, both in total and for export-based industries, suggesting incentives can crowd out other investment.…”

“…Two recent papers by Partridge et al (2020) and Fazio et al (2020) explore the potential effects of different state and local economic incentives on US county-level start-up activity. Partridge et al (2020) find that these incentives have a negative correlation with start-up rates, both in total and for export-based industries, suggesting incentives can crowd out other investment. Instead, the authors find evidence that greater labor market flexibilitymeasured through the level of intersectoral job flows-is related positively to the rate of total start-up, suggesting that promoting human capital development and reducing barriers to job mobility are important factors in entrepreneurial activity development.…”

Taxes and Economic Development: An Update on the State of the Economics Literature

“…Notably, there are a host of studies published after 2018 that addressed this topic and many of them used quasi-experimental studies. These newer studies include Bundrick and Yuan (2019) ,30 Patrick and Stephens (2020), Partridge et al (2020), andWang et al (2020).…”