Business Incentive Use Among U.S. Local Governments: A Story of Accountability and Policy Learning

Use of business incentives is one of the most common local economic development strategies. The authors analyze national surveys of 700 to 1,000 local governments from 1994, 1999, and 2004 to track use of business incentives over time. They find a shift from primary reliance on business incentives to use of a broader set of strategies that includes business retention and small business support. The authors also find evidence of policy learning with increased attention to accountability among governments that use business incentives. The 2004 model results also suggest that governments that rely most heavily on incentives may face more intergovernmental competition, stagnating or declining economies, and lower tax bases. For such governments, business incentives may contribute to a cycle of destructive competition.