By Caleb Taylor
ACRE Policy Analyst Jacob Bundrick and ACRE Scholar and UCA Associate Professor of Economics Dr. Thomas Snyder joined the Paul Harrell Program on December 12th to discuss their recent working paper, “Do Business Subsidies Lead to Increased Economic Activity? Evidence from Arkansas’s Quick Action Closing Fund.”
The Quick Action Closing Fund (QACF) allows the state to provide cash grants to select entities in the hopes of attracting and retaining businesses within Arkansas. The state legislature has appropriated approximately $176 million to the QACF since it was created in 2007. The Arkansas Economic Development Commission has said the program is responsible for creating or retaining nearly 20,000 jobs in Arkansas. However, in their research, Bundrick and Snyder conclude there’s insufficient evidence that these QACF subsidies increase private employment or business creation at the county level.
Bundrick said during the radio interview yesterday that he and Snyder were motivated to study the QACF program in order to evaluate its level of economic benefit to the state.
Bundrick said:
“We can’t just throw subsidies and tax incentives out and just assume they’re going to have these great, positive effects because that’s what we hope they do. We have to actually evaluate them and see if they’re actually accomplishing their desired goals. If not, we can figure out a better policy to help encourage economic development.”
Bundrick is also the author of the ACRE policy review, “Taxes and Subsidies: Challenging the Arkansas Status Quo” and recently participated in a panel on the use of data in economic development organized by UCA’s Center for Community and Economic Development.
Snyder said the paper’s findings should give Arkansans a reason to be skeptical of whether the QACF should exist or not.
Snyder said:
“One thing we don’t actually consider in our paper is that $176 million could have been spent elsewhere. You can actually give it back to the taxpayer. We don’t know what would’ve happened if that sum would have been given back to the taxpayer to spend themselves. Or, if the government had to spend that money, it could’ve been spent on infrastructure, school teachers, or workforce development. Instead, we are spending it on something that’s not proven to be effective. It is something that you can see the positive effects, but you can’t see the negative effects. These sorts of programs are very attractive for politicians where people can see that these jobs are created. What you don’t see is that in order to create that job we had to take money from someone else and destroy jobs. Overall, in our study we show that this policy is not shown to be effective.”
Snyder recommended Arkansas lawmakers consider alternative economic development policies such as simplifying the state tax code through broadening the tax base and lowering rates. ACRE Scholar and UCA Assistant Professor of Economics Dr. Jeremy Horpedahl wrote extensively on this topic in his book with Tax Foundation co-authors entitled Arkansas: The Road Map to Tax Reform.
Reforming barriers to employment such as outdated or unnecessary occupational licensing requirements is another economic development alternative Arkansas lawmakers should consider, according to Snyder. Snyder was the co-author of “The State of Occupational Licensing: Arkansas” with researchers from the the Mercatus Center which gives an overview of occupational licensing in Arkansas as well as makes suggestions for reform. He is also the author of the ACRE Research Paper, The Effects of Occupational Licensing in Arkansas, and a co-author of the ACRE Policy Review Unnatural Rights in the Natural State which examine this issue in more details. Snyder is also the co-author with UCA graduate Saliou N. Ouattara of “Occupational Licensure and Property Crime” which will be published in the Journal of Regional Analysis and Policy which examines the relationship between licensing requirements and high property crime rates.
You can watch the entire interview with Bundrick and Snyder here and keep an eye out for the academic paper this study is based on which has been accepted to the academic journal The Review of Regional Studies and will be published in 2018.