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Combining Rules and Discretion in Economic Development Policy: Evidence on the Impacts of the California Competes Tax Credit

Author

Listed:
  • Matthew Freedman
  • Shantanu Khanna
  • David Neumark
Abstract
We evaluate the effects of one of a new generation of economic development programs, the California Competes Tax Credit (CCTC), on local job creation. Incorporating perceived best practices from previous initiatives, the CCTC combines explicit eligibility thresholds with some discretion on the part of program officials to select tax credit recipients. The structure and implementation of the program facilitates rigorous evaluation. We exploit detailed data on accepted and rejected applicants to the CCTC, including information on scoring of applicants with regard to program goals and funding decisions, together with restricted access American Community Survey (ACS) data on local economic conditions. Using a difference-in-differences approach, we find that each CCTC-incentivized job in a census tract increases the number of individuals working in that tract by over two � a significant local multiplier. We also explore the program�s distributional implications and impacts by industry. We find that CCTC awards increase employment among workers residing in both high income and low income communities, and that the local multipliers are larger for non-manufacturing awards than for manufacturing awards.

Suggested Citation

  • Matthew Freedman & Shantanu Khanna & David Neumark, 2021. "Combining Rules and Discretion in Economic Development Policy: Evidence on the Impacts of the California Competes Tax Credit," Working Papers 21-13, Center for Economic Studies, U.S. Census Bureau.
    • Handle: RePEc:cen:wpaper:21-13
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    File URL: https://www2.census.gov/ces/wp/2021/CES-WP-21-13.pdf
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    References listed on IDEAS

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    Cited by:

    1. Freedman, Matthew & Khanna, Shantanu & Neumark, David, 2023. "JUE Insight: The Impacts of Opportunity Zones on Zone Residents," Journal of Urban Economics, Elsevier, vol. 133(C).

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    More about this item

    Keywords

    Economic Development; Business Incentives; Tax Credits; Hiring Incentives; Place- Based Policies;
    All these keywords.

    JEL classification:

    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • H71 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Taxation, Subsidies, and Revenue
    • J68 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Public Policy
    • R11 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Regional Economic Activity: Growth, Development, Environmental Issues, and Changes
    • R23 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - Regional Migration; Regional Labor Markets; Population
    • R58 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Regional Government Analysis - - - Regional Development Planning and Policy

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