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Industrial Policies and U.S. State Economic Development Programs

Industrial Policies and U.S. State Economic Development Programs. James Alm and David L. Sjoquist. Goal of Industrial Policy. Jobs? More productive economy?. Two Divergent Views. Growth/development requires substantial government intervention Government is the problem.

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Industrial Policies and U.S. State Economic Development Programs

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  1. Industrial Policies and U.S. State Economic Development Programs James Alm and David L. Sjoquist

  2. Goal of Industrial Policy • Jobs? • More productive economy?

  3. Two Divergent Views • Growth/development requires substantial government intervention • Government is the problem

  4. 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.”

  5. Government Role • Provide information • Coordination externalities

  6. 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

  7. Example: Florida • $3000 per net new job • $1000 more if wage > 150% of state average • Targeted industries • Refundable • Cap of $5 million per applicant

  8. 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

  9. 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

  10. Negotiated Incentives

  11. Loans

  12. R&D • Tax Credits • Generally follow Federal R&E definition of qualified expenses • Credit rates vary • Ceilings on credits for firm and total

  13. R&D • University-based program • Example: Georgia Research Alliance • Eminent Scholars • R&D Labs and Equipment • Technology Partnership Fund • Technology Incubators

  14. Specialized Training • State may provide training or share the cost • Specific industries

  15. Tourism • General promotion of tourism • Some states provide incentives • Limited types of tourism • Sales tax exemptions • Tax credits for investment in tourist facilities

  16. Film and Video • Incentives • Credits equal to a % of qualified expenses • Waivers of sales tax

  17. 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

  18. Accountability • Little information about incentive • A few states have reporting requirements

  19. 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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