Tuesday, March 24th, 2015 1:14 pm

Local Tax Incentives

Question A: Giving tax incentives to specific firms to locate operations in a city or state typically generates local benefits that outweigh the costs to the city and/or state providing the incentives.

Responses
 

Source: IGM Economic Experts Panel
www.igmchicago.org/igm-economic-experts-panel

Responses weighted by each expert's confidence

Source: IGM Economic Experts Panel
www.igmchicago.org/igm-economic-experts-panel

Question B: The US as a whole benefits when cities or states compete with each other by giving tax incentives to firms to locate operations in their jurisdictions.

Responses
 

Source: IGM Economic Experts Panel
www.igmchicago.org/igm-economic-experts-panel

Responses weighted by each expert's confidence

Source: IGM Economic Experts Panel
www.igmchicago.org/igm-economic-experts-panel

Question A Participant Responses

Participant University Vote Confidence Comment Bio/Vote History
Acemoglu Daron Acemoglu MIT Agree 5
Bio/Vote History
         
Alesina Alberto Alesina Harvard Did Not Answer
Bio/Vote History
         
Altonji Joseph Altonji Yale Uncertain 4
Bio/Vote History
         
Auerbach Alan Auerbach Berkeley Agree 3
Bio/Vote History
         
Autor David Autor MIT Uncertain 5
Bio/Vote History
         
Baicker Katherine Baicker Harvard Uncertain 3
Bio/Vote History
         
Banerjee Abhijit Banerjee MIT Uncertain 1
Bio/Vote History
         
Bertrand Marianne Bertrand Chicago Uncertain 3
Bio/Vote History
         
Brunnermeier Markus Brunnermeier Princeton Uncertain 3
Bio/Vote History
         
Chetty Raj Chetty Harvard Uncertain 8
Bio/Vote History
         
Chevalier Judith Chevalier Yale Did Not Answer
Bio/Vote History
         
Cutler David Cutler Harvard Uncertain 7
Bio/Vote History
         
Deaton Angus Deaton Princeton Agree 1
Bio/Vote History
         
Duffie Darrell Duffie Stanford Agree 3
If it was not to the benefit of the local government, why would they do it?
Bio/Vote History
         
Edlin Aaron Edlin Berkeley Disagree 7
The competition is fierce and the benefits uncertain. Winners curse is likely.
Bio/Vote History
         
Eichengreen Barry Eichengreen Berkeley Uncertain 5
Bio/Vote History
         
Einav Liran Einav Stanford Uncertain 6
Bio/Vote History
         
Fair Ray Fair Yale Uncertain 5
Bio/Vote History
         
Finkelstein Amy Finkelstein MIT Did Not Answer
Bio/Vote History
         
Goldberg Pinelopi Goldberg Yale Agree 5
Bio/Vote History
         
Goolsbee Austan Goolsbee Chicago Uncertain 1
Bio/Vote History
         
Greenstone Michael Greenstone Chicago Did Not Answer
Bio/Vote History
         
Hall Robert Hall Stanford Did Not Answer
Bio/Vote History
         
Hart Oliver Hart Harvard Agree 5
If it's done carefully--the firms can't get the tax benefits and then leave--this can pay off for a city or state.
Bio/Vote History
         
Holmström Bengt Holmström MIT Agree 7
Bio/Vote History
         
Hoxby Caroline Hoxby Stanford Did Not Answer
Bio/Vote History
         
Hoynes Hilary Hoynes Berkeley Uncertain 9
Bio/Vote History
         
Judd Kenneth Judd Stanford Disagree 7
It is difficult to believe that taxation decisions are consistent with cost-benefit analysis.
Bio/Vote History
         
Kaplan Steven Kaplan Chicago Uncertain 5
Bio/Vote History
         
Kashyap Anil Kashyap Chicago Disagree 3
Of cours deals differ but usually the taxpayers get fleeced for a limited number of jobs that get relocated
Bio/Vote History
         
Klenow Pete Klenow Stanford Uncertain 4
It has local benefits, but the costs can outweigh them (e.g., if far enough beyond the peak of the Laffer Curve).
-see background information here
Bio/Vote History
         
Levin Jonathan Levin Stanford Uncertain 4
Bio/Vote History
         
Maskin Eric Maskin Harvard Agree 6
Bio/Vote History
         
Nordhaus William Nordhaus Yale Uncertain 1
Bio/Vote History
         
Saez Emmanuel Saez Berkeley Agree 6
Bio/Vote History
         
Samuelson Larry Samuelson Yale Disagree 5
Benefits are wildly exaggerated in the popular press, and we lack definitive scientific evidence either way.
Bio/Vote History
         
Scheinkman José Scheinkman Princeton Strongly Disagree 7
Well documented that subsidies to sport stadiums yield negative returns and no reason to believe that it is better for other industries
Bio/Vote History
         
Schmalensee Richard Schmalensee MIT Uncertain 5
I doubt it but don't recall seeing anything rigorous on this.
Bio/Vote History
         
Shapiro Carl Shapiro Berkeley Did Not Answer
Bio/Vote History
         
Shimer Robert Shimer Chicago Agree 4
See Greenstone, Hornbeck, and Moretti (JPE 2010) for some evidence of large positive spillovers
Bio/Vote History
         
Thaler Richard Thaler Chicago Uncertain 1
I don't see how anyone can have an opinion about this without data. A $1 tax break is worth it. $100B not. In between?
Bio/Vote History
         
Udry Christopher Udry Yale Did Not Answer
Bio/Vote History
         

Question B Participant Responses

Participant University Vote Confidence Comment Bio/Vote History
Acemoglu Daron Acemoglu MIT Uncertain 5
Such competition helps for local political economy reasons but may shift too much otherwise-public resources towards footloose companies.
Bio/Vote History
         
Alesina Alberto Alesina Harvard Did Not Answer
Bio/Vote History
         
Altonji Joseph Altonji Yale Disagree 5
Bio/Vote History
         
Auerbach Alan Auerbach Berkeley Disagree 3
Bio/Vote History
         
Autor David Autor MIT Uncertain 5
I would agree if I were certain that governors had their states' long term interests in mind when cutting tax deals. Not sure that's true.
Bio/Vote History
         
Baicker Katherine Baicker Harvard Disagree 3
Bio/Vote History
         
Banerjee Abhijit Banerjee MIT Disagree 6
Bio/Vote History
         
Bertrand Marianne Bertrand Chicago Disagree 4
Bio/Vote History
         
Brunnermeier Markus Brunnermeier Princeton Disagree 3
Bio/Vote History
         
Chetty Raj Chetty Harvard Disagree 10
Bio/Vote History
         
Chevalier Judith Chevalier Yale Did Not Answer
Bio/Vote History
         
Cutler David Cutler Harvard Strongly Disagree 8
Bio/Vote History
         
Deaton Angus Deaton Princeton Agree 1
Bio/Vote History
         
Duffie Darrell Duffie Stanford Uncertain 3
On its face, this sort of competition is useful. I can imagine that experts on this issue may suggest some unintended related distortions.
Bio/Vote History
         
Edlin Aaron Edlin Berkeley Disagree 7
Bio/Vote History
         
Eichengreen Barry Eichengreen Berkeley Disagree 8
Bio/Vote History
         
Einav Liran Einav Stanford Uncertain 5
Bio/Vote History
         
Fair Ray Fair Yale Disagree 5
Bio/Vote History
         
Finkelstein Amy Finkelstein MIT Did Not Answer
Bio/Vote History
         
Goldberg Pinelopi Goldberg Yale Disagree 5
Bio/Vote History
         
Goolsbee Austan Goolsbee Chicago Uncertain 1
Bio/Vote History
         
Greenstone Michael Greenstone Chicago Did Not Answer
Bio/Vote History
         
Hall Robert Hall Stanford Did Not Answer
Bio/Vote History
         
Hart Oliver Hart Harvard Disagree 7
There is no social benefit to the US as a whole unless the firms would have located abroad. There is a social loss from lower tax receipts.
Bio/Vote History
         
Holmström Bengt Holmström MIT Agree 4
Bio/Vote History
         
Hoxby Caroline Hoxby Stanford Did Not Answer
Bio/Vote History
         
Hoynes Hilary Hoynes Berkeley Disagree 8
Bio/Vote History
         
Judd Kenneth Judd Stanford Disagree 7
Bio/Vote History
         
Kaplan Steven Kaplan Chicago Uncertain 5
Bio/Vote History
         
Kashyap Anil Kashyap Chicago Strongly Disagree 5
This is almost entirely zero sum, with the companies gaining and the taxpayers losing.
Bio/Vote History
         
Klenow Pete Klenow Stanford Disagree 5
It could help if tax rates tend to be too high for political economy reasons.
-see background information here
Bio/Vote History
         
Levin Jonathan Levin Stanford Uncertain 4
Bio/Vote History
         
Maskin Eric Maskin Harvard Uncertain 6
Bio/Vote History
         
Nordhaus William Nordhaus Yale Disagree 6
Generally a waste of revenues in negative-sum game.
Bio/Vote History
         
Saez Emmanuel Saez Berkeley Strongly Disagree 8
Bio/Vote History
         
Samuelson Larry Samuelson Yale Disagree 8
Such competitive does enhance allocative efficiency, but its primary effect is to transfer surplus from other taxpayers to firms.
Bio/Vote History
         
Scheinkman José Scheinkman Princeton Uncertain 7
Would agree if cities compete with uniform lower taxes for all firms.
Bio/Vote History
         
Schmalensee Richard Schmalensee MIT Strongly Disagree 7
Unless the firm would otherwise locate abroad, the only net effect is less tax revenue. The EU bans state aid for this reason.
Bio/Vote History
         
Shapiro Carl Shapiro Berkeley Did Not Answer
Bio/Vote History
         
Shimer Robert Shimer Chicago Uncertain 5
There is a clear zero-sum aspect to tax competition. But nothing else can restrain the leviathan. The balance is unclear.
Bio/Vote History
         
Thaler Richard Thaler Chicago Disagree 1
Again data would be nice. Competition is good but unraveling is bad. Which is this? Transparency would help.
Bio/Vote History
         
Udry Christopher Udry Yale Did Not Answer
Bio/Vote History
         

10 New Economic Experts join the IGM Panel


For the past two years, our expert panelists have been informing the public about the extent to which economists agree or disagree on important public policy issues. This week, we are delighted to announce that we are expanding the IGM Economic Experts Panel to add ten new distinguished economists. Like our other experts, these new panelists have impeccable qualifications to speak on public policy matters, and their names will be familiar to other economists and the media.

To give the public a broad sense of their views on policy issues, each new expert has responded to a selection of 16 statements that our panel had previously addressed. We chose these 16 statements, which cover a wide range of important policy areas, because the original panelists' responses to them were analyzed in a paper comparing the views of our economic experts with those of the American public. You can find that paper, by Paola Sapienza and Luigi Zingales, here. The paper, along with other analyses of the experts' views, was discussed during the American Economic Association annual meetings, and the video can be found here.

The new panelists' responses to these statements can be seen on their individual voting history pages. Our ten new economic experts are:

Abhijit Banerjee (MIT)
Markus K. Brunnermeier (Princeton)
Liran Einav (Stanford)
Amy Finkelstein (MIT)
Oliver Hart (Harvard)
Hilary Hoynes (Berkeley)
Steven N. Kaplan (Chicago)
Larry Samuelson (Yale)
Carl Shapiro (Berkeley)
Robert Shimer (Chicago)


Please note that, for the 16 previous topics on which these new panelists have voted, we left the charts showing the distribution of responses unchanged. Those charts reflect the responses that our original panelists gave at the time, and we have not altered them to reflect the views of the new experts.

We have also taken this opportunity to ask our original panelists whether they would vote differently on any of the statements we have asked about in the past. Several experts chose to highlight statements to which they would currently respond differently. In such cases, you will see this "revote" below the panelist's original vote. We think you will enjoy seeing examples of statements on which some experts have reconsidered.

As with the 16 previous statements voted on by new panelists, these "revote" responses are not reflected in the chart that we display showing the distribution of views for that topic: all the charts for previous questions reflect the distribution of views that the experts expressed when the statement was originally posed.

About the IGM Economic Experts Panel

This panel explores the extent to which economists agree or disagree on major public policy issues. To assess such beliefs we assembled this panel of expert economists. Statistics teaches that a sample of (say) 40 opinions will be adequate to reflect a broader population if the sample is representative of that population.

To that end, our panel was chosen to include distinguished experts with a keen interest in public policy from the major areas of economics, to be geographically diverse, and to include Democrats, Republicans and Independents as well as older and younger scholars. The panel members are all senior faculty at the most elite research universities in the United States. The panel includes Nobel Laureates, John Bates Clark Medalists, fellows of the Econometric society, past Presidents of both the American Economics Association and American Finance Association, past Democratic and Republican members of the President's Council of Economics, and past and current editors of the leading journals in the profession. This selection process has the advantage of not only providing a set of panelists whose names will be familiar to other economists and the media, but also delivers a group with impeccable qualifications to speak on public policy matters.

Finally, it is important to explain one aspect of our voting process. In some instances a panelist may neither agree nor disagree with a statement, and there can be two very different reasons for this. One case occurs when an economist is an expert on a topic and yet sees the evidence on the exact claim at hand as ambiguous. In such cases our panelists vote "uncertain". A second case relates to statements on topics so far removed from the economist's expertise that he or she feels unqualified to vote. In this case, our panelists vote "no opinion".

The Economic Experts Panel questions are emailed individually to the members of the panel, and each responds electronically at his or her convenience. Panelists may consult whatever resources they like before answering.

Members of the public are free to suggest questions (see link below), and the panelists suggest many themselves. Members of the IGM faculty are responsible for deciding the final version of each week’s question. We usually send a draft of the question to the panel in advance, and invite them to point out problems with the wording if they see any. In response, we typically receive a handful of suggested clarifications from individual experts. This process helps us to spot inconsistencies, and to reduce vagueness or problems of interpretation.

The panel data are copyrighted by the Initiative on Global Markets and are being analyzed for an article to appear in a leading peer-reviewed journal.

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