Business Incentive Adoption in the Recession

Abstract

Business incentive use rose dramatically among U.S. municipalities after the Great Recession. This article seeks to explain that rise using national surveys of local government economic development practice for 2004 and 2009. The authors differentiate business incentive use by three types (tax abatements, labor support, and planning) and by new and experienced users. We find that higher business incentive use is a response to lower property tax and higher unemployment. We also find that higher business incentive use is associated with greater attention to accountability, even among the new business incentive users. Governments that rely more heavily on tax incentives to firms face more competition and lower tax revenue than governments that use more incentives focused on labor and planning. We also find broadening attention to accountability measures and a widening of community development investment to arenas that target improved quality of life.