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Three Essays on Economic Development Incentives: Explaining the Usage, Effects, and Abandonment of Economic Development Activities Open Access

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This dissertation contains three essays on state and local economic development incentives. The primary mission of state and local governments is to reduce unemployment and bolster tax revenues. One way in which governments accomplish these goals is by using economic development subsidies and policies at their disposal. States statutorily authorize a range of economic development incentives (e.g. tax abatements, tax increment financing, enterprise zones, etc.). Local governments are empowered to take advantage of this authorization and use these tools to attract firms and people as a means to grow their own economies. However, not all state governments authorize every type of economic development incentive. Additionally, local governments do not utilize each type of economic development incentive, even when authorized to do so by the state. What determines the usage of these policies at the local level has been the subject of much research; however, this literature has failed to account for state-level authorization. Therefore, what is known about the “determinants” of economic development incentive utilization at the local level is theoretically and empirically flawed. The first essay addresses this issue by restricting the analyses to only those local governments that have statutory authorization to make use of these incentives, and compares these findings to the full set of cases with and without state authorization as is characteristics of the previous literature. Differences in magnitudes and significance levels are highlighted. Increasingly governments are interested in determining the economic impact of their policies. The second essay uses difference-in-differences and triple differences models to evaluate the employment, payroll, and establishment effects of state Earned Income Tax Credits (EITC) in metropolitan areas that span more than one state where one side of the border has an EITC and the other does not. Given that states decide whether, when, and at what level to authorize these credits, this variation across states allow for a test of the impact of these policies on local economic outcomes. While a good deal is known about why state and local governments use economic development policies, and how to evaluate these policies, little is known about the factors that contribute to the abandonment of economic development policies at state and local levels of government. Essay three explores the characteristics and context for policy abandonment of economic development policies at both levels of government. Using Fuzzy Set Qualitative Comparative Analysis (fsQCA), and regression-based models, this essay estimates the impact that political, economic, and social factors have on the abandonment of these policies. Additional research within local governments highlights the relative importance of each of factor in determining the propensity for policy abandonment.

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