State Tax Incentive Evaluations Database

10/24/2019

Introduction

State tax incentives continue to be on state legislative agendas and more and more lawmakers have expressed interest in having good information on the impact of incentives. As a result, states across the country are starting to gather data and use evidence to systematically evaluate tax incentives.

To illustrate what sort of evaluations states are conducting, NCSL, with the generous support of The Pew Charitable Trusts, created a database of state tax incentive evaluations. Evaluations published since the start of 2008 are included and more reports will be added over time.

Instructions

This tool allows users to search for state evaluations by analysis topic, type of incentive, state, and year. Users may choose as many terms in each category as desired. To choose all of the terms in a category, please click on the "All" option in that category. To change search terms, please click on "Reset All" before choosing new search terms. 

After selecting the search parameters, click on the search button. The results will be displayed by state with a link to the evaluation produced by the state, the year the evaluation was published, and the evaluation's analysis topics and incentive types. In cases where only some pages of an evaluation include a certain analysis topic or incentive type, page ranges will be listed based on the page numbers printed on the document. A glossary of the search criteria is below. 

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Glossary

But for

Incentives are designed to encourage businesses to produce economic activity they would not have otherwise, "but for" the incentive provided by the state. Almost always, however, they at least partially reward businesses for what they would have done anyway. With that in mind, high-quality evaluations estimate the amount of incentivized activity attributable to the incentive.

Displacement

Economic activity created by incentivized businesses can come at the expense of other businesses in the state. For example, if an incentive helps a business expand, its competitors could be worse off as a result. To take into account this displacement, evaluations have measured the net effect of incentives on the state economy (rather than merely focusing on the results for the companies that received incentives).

Economic modeling

Many evaluations use models such as a REMI (Regional Economic Models, Inc.) or IMPLAN to measure the economic impact of incentives. These models are based on a series of equations that represent economic relationships. They can be used to measure how one change in the economy, such as the introduction of a tax incentive, affects other areas of the economy.

Fiscal challenges

In many states, the costs of incentives have increased quickly and unexpectedly, causing budget challenges. Evaluations have described the causes of these cost increases or have analyzed whether adequate protections are in place to avoid them.

Incentive administration

For most incentives, a state agency or agencies are responsible for operating the program. Depending on the specifics of the program, these administering agencies may be charged with advertising the availability of the incentives, determining which companies are eligible, and monitoring the performance of companies that benefit. Evaluations often study whether administering agencies are performing these tasks efficiently and effectively and identify potential improvements.

Incentive data

To evaluate incentives, state officials often gather data from a variety of sources including revenue departments, workforce agencies, and businesses themselves. Frequently, evaluations describe challenges related to data quality and data access or solutions to these challenges.

Incentive design

Incentive programs differ in many ways, including which companies are eligible, how the size of the benefits are determined, and whether they take the form of tax breaks, grants, or loans. Even subtle differences in a program’s design can have a large impact on its return on investment. For that reason, many evaluations analyze whether incentives have been well-designed to achieve their intended goals and offer recommendations for improving their effectiveness.

Leakage

When incentivized companies produce economic activity in a state, some of the benefits will likely flow to others states. For example, if an incentive prompts a manufacturer to locate in a state, but it buys supplies from a business in another state, the supplier’s state receives those indirect benefits. High-quality evaluations estimate how much leakage is taking place to help measure the in-state economic impact.

Literature Review

Many evaluations discuss academic literature or other economic research. These literature reviews are often helpful for describing the history, rationale, and effectiveness of particular types of incentives (e.g. film tax credits). Some evaluations have also used academic literature on the responsiveness of businesses to reductions in their taxes as a way to gauge what happened because of the incentive and what would have happened anyway.

Multipliers

The direct economic activity created by incentivized businesses may also produce additional benefits. For example, if a new manufacturer purchases supplies from other in-state businesses, those businesses may also grow—multiplying the impact. Economic researchers have developed estimates for these multipliers, which vary based on a variety of factors such as the industry of the company directly receiving incentives. High-quality evaluations are transparent about the multipliers they use and explain the rationale behind them.

Opportunity costs

When states dedicate revenue to business incentives, they lose the ability to spend that revenue on other priorities, such as education, transportation, or broad-based tax cuts. Opportunity costs represent the benefits of those alternatives and provide an important benchmark to compare with the outcomes of incentives to determine their effectiveness.

Regression analysis

Regression models estimate the relationship between a single independent variable and one or more dependent variables. Evaluations sometimes use regression analysis to estimate the effects of incentives.

Additional Resources