Hostname: page-component-cd9895bd7-lnqnp Total loading time: 0 Render date: 2024-12-30T23:31:59.415Z Has data issue: false hasContentIssue false
  • English
  • Français

Chasing Disparity: Economic Development Incentives and Income Inequality in the U.S. States

Published online by Cambridge University Press:  05 January 2021

Joshua M. Jansa Open the ORCID record for Joshua M. Jansa [Opens in a new window]
Joshua M. Jansa*
Affiliation:
Oklahoma State University, Stillwater, OK, USA
*
Corresponding Author: Joshua M. Jansa, Department of Political Science, Oklahoma State University, 233 Murray Hall, Stillwater, OK 74078-1010, USA. Email: [email protected]
Get access Rights & Permissions [Opens in a new window]

Abstract

Political scientists and policy scholars have traditionally looked at the role of welfare and tax policies in shaping income inequality. Less attention has been paid to the key policy area of economic development. But states spend billions on economic development incentives each year to encourage firms to locate in their state. The few studies that have examined the impact of economic development policy on inequality have found mixed results, and have not considered who shapes and benefits from economic development policy when identifying possible causal mechanisms. I argue that increased incentive spending leads to increased inequality through either a market conditioning effect (incentives disproportionately boost the incomes of top earners prior to taxes) or a redistributive effect (incentives allow wealthy firms, investors, and employees to keep income that would otherwise be taxed and transferred). These mechanisms are tested using data on incentive spending and inequality across the 50 states from 1999 to 2014. The findings demonstrate that incentives increase income inequality via a redistributive effect only. This effect, though, is relatively large, long-lasting, and robust to different measures of incentive spending. Despite using economic development incentives to try to generate greater prosperity, state governments may be inadvertently exacerbating inequality.

Keywords

economic development policyincome inequalitystate politicsmarket conditioningredistribution
Type
Research Article
Information
State Politics & Policy Quarterly , Volume 20 , Issue 4 , December 2020 , pp. 462 - 488
Copyright
Copyright © The Author(s) 2020

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

References

Banda, Kevin K., and Windett, Jason H. 2016. “Negative Advertising and the Dynamics of Candidate Support.” Political Behavior 38:747–66.CrossRefGoogle Scholar
Barrilleaux, Charles, and Davis, Belinda Creel. 2003. “Explaining State-Level Variations in Levels and Change in the Distribution of Income in the United States, 1978-1990.” American Politics Research 31 (3): 280–300..CrossRefGoogle Scholar
Berry, William D., Ringquist, Evan J., Fording, Richard C., and Hanson, Russell L. 1998. “Measuring Citizen and Government Ideology in the American States, 1960-93.” American Journal of Political Science 42 (1): 327–48..CrossRefGoogle Scholar
Boak, Josh. 2014. “Income Inequality Is Hurting State Tax Revenue, Report Says.” The Washington Post, September 15. https://www.washingtonpost.com/business/economy/income-inequality-is-hurting-state-tax-revenue-report-says/2014/09/14/12f31a8c-3c59-11e4-b03f-de718edeb92f_story.html.Google Scholar
Brace, Paul. 1993. State Government and Economic Performance. Baltimore: Johns Hopkins University Press.Google Scholar
Bucci, Laura C. 2018. “Organized Labor's Check on Rising Economic Inequality in the U.S. States.” State Politics and Policy Quarterly 18:148–73.CrossRefGoogle Scholar
Buss, Terry F. 2001. “The Effect of State Tax Incentives on Economic Growth and Firm Location Decisions: An Overview of the Literature.” Economic Development Quarterly 15 (1): 90–105..CrossRefGoogle Scholar
DeBoef, Suzanna, and Keele, Luke. 2008. “Taking Time Seriously: Dynamic Regression.” American Journal of Political Science 52 (1): 184–200..Google Scholar
Dewar, Margaret. 1998. “Why State and Local Economic Development Programs Cause so Little Economic Development.” Economic Development Quarterly 12 (1): 68–87..CrossRefGoogle Scholar
Eisinger, Peter K. 1988. The Rise of the Entrepreneurial State. Madison: University of Wisconsin Press.Google Scholar
Eisinger, Peter K. 1995. “State Economic Development in the 1990s: Politics and Policy Learning.” Economic Development Quarterly 9 (2): 146–58..Google Scholar
Eggert, D. 2015. “Ford Agrees to Invest $3.1 Billion To Get Max Michigan Tax Credits.” CBS Detroit. https://detroit.cbslocal.com/2015/06/08/ford-agrees-to-invest-3-1-billion-to-get-max-michigan-tax-credits/Google Scholar
Enns, Peter K., Kelly, Nathan J., Masaki, Takaaki, and Wohlfarth, Patrick C. 2016. “Don't Jettison the General Error Correction Model Just Yet: A Practical Guide to Avoiding Spurious Regression with the GECM.” Research & Politics 3(2): 1–16.CrossRefGoogle Scholar
Enns, Peter K., Kelly, Nathan J., Morgan, Jana, Volscho, Thomas, and Witko, Christopher. 2014. “Conditional Status Quo Bias and Top Income Shares: How U.S. Political Institutions Have Benefited the Rich.” Journal of Politics 76 (2): 289–303..CrossRefGoogle Scholar
Faricy, Christopher. 2011. “The Politics of Social Policy in America: The Causes and Effects of Indirect versus Direct Social Spending.” Journal of Politics 73 (1): 74–83..CrossRefGoogle Scholar
Frank, Mark, Sommellier, Estelle, Price, Mark, and Saez, Emmanuel. 2015. “Frank-Sommellier-Price Series for Top Income Shares by US States since 1917.” https://econpapers.repec.org/paper/weltenote/201507.htm.Google Scholar
Franko, William W., and Witko, Christopher. 2018. The New Economic Populism: How States Respond to Economic Inequality. New York: Oxford University Press.Google Scholar
Good Jobs First. 2016. “Subsidy Tracker.” Good Jobs First. https://www.goodjobsfirst.org/subsidy-tracker (accessed February 20, 2016).Google Scholar
Gottschalk, Peter. 1993. “Changes in Inequality of Family Income in Seven Industrialized Countries.” The American Economic Review 83 (2): 136–42..Google Scholar
Gravelle, Jane G., and Marples, Donald J. 2019. “The Economic Effects of the 2017 Tax Revision: Preliminary Observations.” Congressional Research Service. https://crsreports.congress.gov/product/pdf/R/R45736.Google Scholar
Gray, Virginia, and Lowery, David. 1991. “Corporatism without Labor? Industrial Policymaking in the American States.” Journal of Public Policy 11 (3): 315–29..CrossRefGoogle Scholar
Hacker, Jacob S. 2002. The Divided Welfare State: The Battle over Public and Private Social Benefits in the United States. Cambridge University Press.CrossRefGoogle Scholar
Hacker, Jacob S., and Pierson, Paul. 2010. Winner-Take-All Politics: How Washington Made the Rich Richer—And Turned Its Back on the Middle Class. New York: Simon & Schuster.Google Scholar
Hanley, Caroline, and Douglass, Michael T. 2014. “High Road, Low Road, or Off Road? Economic Development Strategies in the American States.” Economic Development Quarterly 28 (3): 220–29..CrossRefGoogle Scholar
Harrison, Bennett, and Kanter, Sandra. 1978. “The Political Economy of States' Job-Creation Business Incentives.” Journal of the American Institute of Planners 44 (4): 424–35..CrossRefGoogle Scholar
Hatch, Megan E., and Rigby, Elizabeth. 2015. “Laboratories of Inequality? Redistributive Policy and Income Inequality in the American States.” Policy Studies Journal 43 (2): 163–87..CrossRefGoogle Scholar
Hayes, Thomas L., and Xavier Medina Vidal, D. 2015. “Fiscal Policy and Economic Inequality in the U.S. States: Taxing and Spending from 1976-2006.” Political Research Quarterly 68 (2): 393–407..CrossRefGoogle Scholar
Hirsch, Barry T., and MacPherson, David A. 2003. “Union Membership and Coverage Database from the Current Population Survey: Note.” Industrial and Labor Relations Review 56 (2): 349–54..CrossRefGoogle Scholar
Hungerford, Thomas L. 2010. “The Redistributive Effect of Selected Federal Transfer and Tax Provisions.” Public Finance Review 38 (4): 450–72..CrossRefGoogle Scholar
Ivanova, Irina. 2018. “Can New York Make Back Its Amazon Investment?” CBS News, November 14. https://www.cbsnews.com/news/can-new-york-make-back-its-amazon-investment/Google Scholar
Jansa, Joshua M. 2016. “Economic Development and Infrastructure Policy.” In Politics of the American States: A Comparative Analysis, eds. Gray, Virginia, Hanson, Russell L., and Kousser, Thad, 11th ed., Washington, DC: CQ Press, 51–74.Google Scholar
Jansa, Joshua M. 2018. “Client Group Influence in Economic Development Organizations: Evidence from North Carolina, Nevada, and Oregon.” Administration & Society 51:1308–36.Google Scholar
Jansa, Joshua M., and Gray, Virginia. 2017. “Captured Development: Industry Influence and State Economic Development Subsidies in the Great Recession Era.” Economic Development Quarterly 31:50–64.CrossRefGoogle Scholar
Jencks, Christopher. 2002. “Does Inequality Matter?” Daedalus 131 (1): 49–65..Google Scholar
Keele, Luke, Linn, Suzanna, and Webb, Clayton McLaughlin. 2016. “Treating Time with All Due Seriousness.” Political Analysis 24:31–41.CrossRefGoogle Scholar
Kelly, Nathan J. 2009. The Politics of Income Inequality in the United States. New York: Cambridge University Press.CrossRefGoogle Scholar
Kelly, Nathan J., and Witko, Christopher. 2012. “Federalism and American Inequality.” The Journal of Politics 74 (2): 414–26..CrossRefGoogle Scholar
Kogan, Vladimir. 2017. “Do anti-union policies increase inequality? Evidence from state adoption of right to work laws.” State Politics and Policy Quarterly 17 (2): 180–200..CrossRefGoogle Scholar
Kropko, Jonathan, and Kubinec, Robert. 2018. “Why the Two-Way Fixed Effects Model Is Difficult to Interpret, and What to Do about It.” SSRN. https://papers.ssrn.com/sol/papers.cfm?abstract_id=33062619.Google Scholar
Langer, Laura. 2001. “The Consequences of State Economic Development Policies on Income Distribution in the American States, 1976–1994.” American Politics Research 29:392–415.CrossRefGoogle Scholar
Leonhardt, David. 2019. “New York Did Us All a Favor by Standing up to Amazon.” New York Times, February 17. https://www.nytimes.com/2019/02/17/opinion/amazon-new-york.htm l?rref=collection%2Fbyline%2Fdavid-leonhardt&action=click&contentCollection=undefined&region=stream&module=stream_unit&version=latest&contentPlacement=3&pgtype=collection.Google Scholar
Lynch, Robert G. 2004. “Rethinking Growth Strategies: How State and Local Taxes and Services Affect Economic Development.” Washington, DC: Economic Policy Institute.Google Scholar
Organisation for Economic Co-Operation and Development. 2016. “Income Inequality Remains High in the Face of Weak Recovery.” Organisation for Economic Co-Operation and Development. https://www.oecd.org/social/OECD2016-Income-Inequality-Update.pdf.Google Scholar
Panizza, Ugo. 2002. “Income Inequality and Economic Growth: Evidence from American Data.” Journal of Economic Growth 7 (1): 25–41..CrossRefGoogle Scholar
Pender, Geoff, and Hall, Sam R. 2016. “Borrowing, Tax Breaks Approved for Tire Plant, Shipyard.” The Clarion-Ledger, February 5. http://www.clarionledger.com/story/news/politics/2016/02/04/lawmakers-debating-continental-incentive-package/79809294/Google Scholar
Peters, Alan, and Fisher, Peter. 2004. “The Failures of Economic Development Incentives.” Journal of the American Planning Association 70 (Winter): 27–37.CrossRefGoogle Scholar
Peterson, Paul E. 1981. City Limits. Chicago: The University of Chicago Press.CrossRefGoogle Scholar
Peterson, Paul E. 1995. The Price of Federalism. Washington, DC: The Brookings Institution.Google Scholar
Pew Center on the States. 2012. Evidence Counts: Evaluating State Tax Incentives for Jobs and Growth. Washington, DC: The Pew Charitable Trusts.Google Scholar
Pierson, Paul. 1995. Dismantling the Welfare State? Reagan, Thatcher, and the Politics of Retrenchment. Cambridge: Cambridge University Press.Google Scholar
Piketty, Thomas, and Saez, Emmanuel. 2014. “Inequality in the Long-Run.” Science 344 (6186): 838–43..CrossRefGoogle ScholarPubMed
Rogoway, Mike. 2012. “Nike, Intel spar privately over governor's tax bill.” The Oregonian. https://www.oregonlive.com/silicon-forest/2012/12/nike_intel_spar_privately_over.htmlGoogle Scholar
Saiz, Martin. 2001. “Politics and Economic Development: Why Governments Adopt Different Strategies to Induce Economic Growth.” Policy Studies Journal 29 (2): 203–14..Google Scholar
Seitz, Amanda. 2018. “AP Fact Check: Scott Walker Embellishes Return on New Milwaukee Bucks Arena.” The Associated Press, September 14. https://madison.com/wsj/news/local/govt-and-politics/ap-fact-check-scott-walker-embellishes-return-on-new-milwaukee/article_f00d4074-d403-5944-a00f-902705e8153f.html.Google Scholar
Shermer, Elizabeth Tandy. 2013. Sunbelt Capitalism: Phoenix and the Transformation of American Politics. Philadelphia: University of Pennsylvania Press.CrossRefGoogle Scholar
Turner, Robert C. 2003. “The Political Economy of Gubernatorial Smokestack Chasing: Bad Policy and Bad Politics?” State Politics and Policy Quarterly 3 (Fall): 270–93.CrossRefGoogle Scholar
Wang, Jia. 2016. “Do Economic Development Incentives Crowd Out Public Expenditures in U.S. States?” BE Journal of Economic Analysis and Policy 16:513–38.Google Scholar
Wang, Jia, Ellis, Stephen E., and Rogers, Cynthia L. 2018. “Income Inequality and Economic Development Incentives in US States: Robin Hood in Reverse?” The Review of Regional Studies 48:93–117.Google Scholar
Young, Sarah L. 2015. “The Impact of Economic Development Strategy on Market Conditioned Income Inequality in the American States.” State and Local Government Review 47:271–84.CrossRefGoogle Scholar
Supplementary material: PDF

Jansa supplementary material

Online Supplemental Material (For Online Publication Only)

Download Jansa supplementary material(PDF)
PDF 162.3 KB