What Works in Evaluating State Economic Development Incentives?

Community and Economic Development – Blog by UNC School of Government

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What Works in Evaluating State Economic Development Incentives?

By Jonathan Morgan

Published May 1, 2012

Jonathan Morgan is a School of Government faculty member.

The Pew Center on the States recently released a report that gives North Carolina high marks for its approach to evaluating the tax incentives offered to businesses in order to promote economic development. What accounts for North Carolina’s strong showing in this “evaluation of incentive evaluations”? How does North Carolina’s approach to evaluating incentives compare to other states?

The Pew report is titled Evidence Counts: Evaluating State Tax Incentives for Jobs and Growth. It is important to note that the report does not evaluate the effectiveness of business incentives in inducing job creation and economic growth. Instead, the report examines how well the 50 states do in assessing their tax incentives with respect to two broad criteria: 1) the scope of the evaluation, and 2) the quality of the evaluation. The scope criterion is based on the extent to which a state assesses all major incentive programs and uses the evaluation results to inform policy decisions. The quality of a state’s incentive evaluation effort is a function of whether the evaluation comprehensively analyzes the economic impact of incentives and draws clear conclusions about their effectiveness.

North Carolina is included among the 13 states found to be “leading the way” when it comes to evaluating tax incentives for economic development. The authors of the Pew report relied largely on the 2009 study of North Carolina’s incentive programs that was commissioned by a legislative committee and conducted by the UNC Center for Competitive Economies.