The Influence of Targeted Economic Development Tax Incentives on County Economic Growth: Evidence From Michigan’s MEGA Credits

Abstract

This article estimates the county-level impact of the Michigan Economic Growth Authority (MEGA) Credit targeted tax incentives to firms from 1995 through 2002. The authors employ a fixed effects instrumental variable model with spatial and time autocorrelation function tested on aggregate income, employment, the unemployment rate, and sectoral activity in manufacturing, wholesale, and construction. The authors find no impacts of the MEGA credit program on county-level aggregate employment, unemployment rates, wages, or incomes. Furthermore, there is no impact of manufacturing or warehousing credits on employment or wages in these sectors. The authors do find that MEGA credits produce a transient impact on construction employment (a drop in construction wages is statistically but not economically significant). The construction impact of MEGA is an estimated $123,000 investment per construction job. Generally, 75% of these jobs last for 1 year, with the remaining 25% lasting only into the second year.

Keywords

Michigan tax incentives MEGA manufacturing warehousing

Get full access to this article

View all access options for this article.

References

Anderson, J.E. , & Wassmer, R. ( 2000). Bidding for business: The efficacy of local economic development incentives in a metropolitan area. Kalamazoo, MI: W. E. Upjohn Institute.

Anselin, L. , & Bera, A. ( 1998). Spatial dependence in linear regression models with an introduction to spatial econometrics. In A. Ullah & D. Giles (Eds.), Handbook of applied economic statistics (pp. 237-289). New York, NY : Marcel Dekker.

Bartik, T.J. ( 2002). Evaluating the impacts of local economic development policies on local economic outcomes: What has been done and what is doable? (Working Paper No. 03-89). Kalamazoo, MI: W.E. Upjohn Institute for Employment Research.

Bartik, T.J. , Eisinger, P. , & Erickcek, G. ( 2003). Economic development policy in Michigan. In C. Ballard , P. Courant , E. Gerber , D. Drake , & R. Fisher (Eds.), Michigan at the Millennium (pp. 279-298). East Lansing, MI: Michigan State University Press.

Basker, E. ( 2005). The labor market effects of big box retailer. Review of Economics and Statistics, 87, 174-183.

Chi, K. ( 1994). State business incentives: Options for the future. Lexington, KY: Council of State Governments.

Christoff, C. ( 1992, August 5). Engler pushes for states to end fights over business. Detroit Free Press, p. 2e.

Edmiston, K.D. ( 2004). The net effects of large plant locations and expansions on county employment. Journal of Regional Science, 44, 289-319.

Fox, W.F. , & Porca, S. ( 2001). Investing in rural infrastructure. International Regional Science Review, 24, 103-133.

10.

Fox, W.F. , & Murray, M. ( 2004). Do economic effects justify the use of fiscal incentives . Southern Economic Journal, 71, 78-92.

11.

Gabe, T.M. , & Kraybill, D.S. (2002). The effect of state economic development incentives on employment growth of establishments. Journal of Regional Science, 42, 703-730.

12.

Greenberg, E. , & Reeder, R. ( 1998). Who benefits from business assistance programs? Results of the ERS rural manufacturing survey (Agricultural Information Bulletin No. 736-04). Washington, DC: U.S. Department of Agriculture.

13.

Haining, R. ( 1990). Spatial data analysis in the social and environmental sciences. New York, NY: Cambridge University Press.

14.

Hicks, M.J. ( 2004). A quasi-experimental estimate of the impact of casino gambling on the regional economy. Paper presented at the 93rd Annual Meeting of the National Tax Association, Chicago, IL.

15.

Hicks, M.J. ( 2007). A quasi-experimental test of large retail stores impacts on regional labor markets: The case of Cabela’s retail outlets. Journal of Regional Analysis and Policy, 37, 116-122.

16.

Hicks, M.J. ( 2008). Estimating Wal-Mart’s impacts in Maryland: A test of identification strategies and endogeneity tests. Eastern Economic Journal, 33, 56-73.

17.

Hicks, M.J. , & Wilburn, K. ( 2001). The regional impact of wal-mart entrance: A panel study of the retail trade sector in West Virginia. Review of Regional Studies, 31 305-313.

18.

Jakeway, D.E. ( 2004). This week @ MEDC. Lansing: Michigan Economic Development Corporation.

19.

LaFaive, M. , & Hicks, J.J. ( 2005). MEGA: A retrospective assessment. Midland, MI: Mackinac Center for Public Policy.

20.

Reed, W.R. , & Rogers, C. ( 2003). A study of quasi-experimental control group methods for estimating policy impacts. Regional Science and Urban Economics , 33(1), 3-25.

21.

Sohn, J. , & Knapp, G.-J. ( 2002). Does job creation tax credit program in Maryland induce spatial employment growth or redistribution. College Park, MD: National Center for Smart Growth.

22.

Tyszkiewicz, M. ( 1998, December). The economic development programs of the Michigan Jobs Commission. State of Michigan, Senate Fiscal Agency. Retrieved from http://www.senate.michigan.gov/sfa/Publications/Issues/Mjcecon/mjcecon.html

23.

Wasylenko, M. ( 1997, March/April). Taxation and economic development: The state of the economic literature. New England Economic Review, 37-52.

24.

Wing, M.M. , Fish, R. , & Overton, J. ( 1995). MEGA Industrial Policy: An analysis of the proposed Michigan economic growth authority. Midland, MI: Mackinac Center for Public Policy.