The Effectiveness of Economic Development Subsidies

The lack of consistent multistate data describing the use of economic development subsidies has been a major factor contributing to the debate over their effectiveness in promoting local economic development. In the absence of such data, it has been difficult to generate empirical evidence to support either the pro or con position. This study makes use of data recently compiled by the Treasury to analyze the relationship between one such subsidy, Industrial Development Bonds, and Gross State Product during the years 1983 to 1986. The results provide evidence that those states that used the subsidy more intensively thaq others tended to have greater increases in GSP.