Pew: States need to better evaluate tax incentive programs

Stateline Midwest ~ May 2012

While every state offers some kind of tax incentive to spur economic development, about half of the states are failing to determine whether these programs are effective, according to a report recently published by the Pew Center on the States.



The study looked at all 50 states’ economic development tax incentives and found that no state regularly and rigorously tests whether the programs are having the intended effect.



However, the organization considers 13 states to be “leading the way,” including Iowa, Kansas, Minnesota and Wisconsin. These states are leaders either because of the scope of their analysis (reviewing all programs instead of just some), the quality of their analysis or their efforts to integrate evaluations into policymaking.



The report cites, for example, the recent decision in Wisconsin to scale back a film tax credit after an evaluation determined it was ineffective.



“Tax incentives are policy choices with significant implications, especially at a time when most states are trying to rebuild their budgets and many have not regained the private-sector jobs lost during the Great Recession,” the report says. “If states do not base decisions on evidence, they could have less money to spend on other critical services.”


The report, “Evidence Counts,” is available online. For additional information about tax incentives, see CSG’s report, “State Business Incentives: Trends and Options for the Future."