Evaluating Industry-Specific Tax Credits and Incentives
Brian Gongol

Should state and local governments offer special tax credits and other incentives to specific industries in order to help encourage them to grow? Here are some of the pro and con arguments:

Good Results of Tax Incentives Bad Results of Tax Incentives
May temporarily create advantages to help particular industries gain a foothold before they are economically viable in the private sector alone

May create some industry-specific jobs
Tax incentives favor some specific businesses at the expense of the rest, which violates a reasonable sense of fairness

When the tax incentives end, the businesses involved often leave town

Politicians and bureaucrats are not by their training nor nature especially capable at picking and evaluating investments (including which businesses are most likely to succeed)

Tax incentives can distort the market and keep an economy from making the best use of comparative advantage

Political attempts at job creation are frequently carried out at the expense of wealth destruction

Tax incentives are an inefficient means of encouraging job creation

The net gain or loss in the number of jobs "created" depends on highly unreliable "multiplier" estimates which are almost always overstated by those who seek to benefit from the incentives

An industry that may be successful at one time may fail badly in another, particularly if it's propped up by political intervention. The resulting failure can be catastrophic for the community -- witness the decline of the Detroit automakers.