Best Practices for Using Tax Incentives
You’ll learn about:
- Understanding when tax incentives may be appropriate and when they are not.
- How to build conditions into incentive agreements and enforce them with clawbacks.
- The value of taking a regional approach to economic development and the dangers of using tax incentives to compete with neighbors for investment.
- Alternative approaches to encouraging economic development, including job training and infrastructure improvements.
Tax incentives are widely used by state and local governments to attract business investment; they cost these governments more than $80 billion dollars each year in forgone revenue. However, research shows that tax incentives are overused, as they are commonly granted when they are unlikely to affect firms’ location decisions or provide a net fiscal benefit for the community.
This session provides guidelines on how to use tax incentives effectively and examines alternative approaches to promoting economic development. Panelists discuss when incentives are most likely to affect a firm’s location decision—based on the type of facility, the geographic market they serve, and their cost structure—and when incentives are unnecessary. They also consider how to build criteria into incentive agreements, such as targets for investment, job creation, and wages, and how to enforce these agreements with clawback provisions. A critical part of using tax incentives responsibly is making sure that all affected governments have a role in decisions on granting incentives, including school districts, and that neighboring communities cooperate in efforts to attract business investment. Finally, panelists describe some alternative approaches to promote economic development, including job training, infrastructure improvements, and more.
, Lincoln Institute of Land Policy
, City of Boston
, Good Jobs First