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