by Aaron Newell
ACRE Policy Analyst Jacob Bundrick recently wrote how better access to data can lead to better policy outcomes in Arkansas. In “Data holds the key: Good analysis vital for policy,” an Arkansas Democrat-Gazette op-ed on February 13, 2019, Bundrick explains that when it comes to targeted development incentives, Arkansas is lacking in publishing good data and evaluating their tax incentives.
The vast majority of economists and research agree on the issue of targeted economic develop incentives: they are ineffective at providing broad economic growth. Bundrick cites Drs. Nathan Jensen and Edmund Malesky, professors at the University of Texas at Austin and Duke University, who explored numerous studies that showed little to no empirical support for incentives in their 2018 book, Incentives to Pander.
Our own analysis shows much of the same. In 2018, Bundrick and Dr. Thomas Snyder, UCA Associate Professor of Economics and ACRE Scholar, published “Do Business Subsidies Lead to Increased Economic Activity? Evidence from Arkansas’s Quick Action Closing Fund.” This study failed to find any evidence of the Quick Action Closing Fund (QACF) providing broad economic growth in Arkansas. Bundrick has also published a policy review that explains 5 easy fixes for the QACF. A one page summary of data related to the QACF can be seen here.
Unfortunately, other targeted development incentive programs lack the same data reporting requirements of the QACF program. Bundrick had this to say about the lack of reporting:
The data on Arkansas’ other incentive programs are inadequate for evaluating their broad economic effects. Arkansas is simply not transparent enough with its use of targeted tax breaks for favored businesses. The Pew Charitable Trusts recently rated Arkansas as a “trailing” state in its “State Tax Incentive Evaluation Ratings.” “Trailing” means Arkansas “lack[s] a well-designed plan to regularly evaluate major tax incentives.”
You can find the Pew Charitable Trust rankings here.
In 2017, a bill was introduced that would help solve this problem. Representative Warwick Sabin sponsored House Bill 2030, which would have created an online database that would have provided greater detail on the use of all economic development incentives, including which companies received special tax breaks and subsidies, what those companies promised in return, and each company’s progress toward those goals. Sabin withdrew the bill when the AEDC agreed to implement a transparency website on their own terms, but after almost two years, no such database has been provided.
Objective analysis is important when it comes to public policy. Without public access to data, this becomes very difficult. Data and analysis allows us to see policies for what they are rather than what we wish they were. When it comes to targeted economic development incentives, some people genuinely believe that they help economic development, but the evidence contradicts them. It is past time to improve access to data on Arkansas’s targeted economic development incentive programs so that they can be rigorously evaluated too.
Bundrick’s original policy review outlining the basic economics of targeted incentives can be found here.
For more of ACRE’s research on this topic, you can go here. To view more of Jacob Bundrick’s research, you can go here. UCA Associate Professor and ACRE Scholar Dr. Thomas Snyder also conducts research on occupational licensing, and you can view his page here.
Nate Jensen visited UCA as a part of ACRE’s Speaker Series in November of 2018 to speak about incentives. You can watch a video presentation summarizing Jensen’s research here. You can view the entire lecture here.
