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Bundrick Questions Benefits of Economic Development Incentives

By Caleb Taylor

Are economic development incentives a cost or benefit to Arkansas? 

ACRE Affiliated Researcher and UCA Lecturer I of Economics Jacob Bundrick was quoted in an article in the Arkansas Democrat-Gazette titled “Tax incentives audit cites impact on state; critics doubt programs key to luring firms,” published on December 14. 

The article focuses on an annual cost-benefit study of economic development incentives by Arkansas Legislative Audit.

The study found “TaxBack, Advantage Arkansas, Create Rebate and Invest Arkansas (incentive) programs have a net positive cost effectiveness, while In-House Research and Development-Targeted Business projects were negative cost effective.”

However, Bundrick disputed the study’s methodology of incentives being “analyzed under the assumption that, without the incentive, the corresponding economic activity would not have occurred.”

Bundrick said:

We see time and again that incentives are not the deciding factor in a company’s location/expansion decision, but merely serve as a reward for doing as they intended. In these cases, incentives are a cost to taxpayers and provide no benefit. Put more simply, if the assumptions used in the analysis are invalid, how can we trust the results? We’re making real decisions with real taxpayer money using analysis we know to be flawed.”

Bundrick was also interviewed by Paul Harrell on Conduit News on December 18 about the Arkansas Legislative Audit study.

Bundrick and UCA Assistant Professor of Economics Dr. Weici Yuan published a paper recently on a similar topic titled “Do Targeted Business Subsidies Improve Income and Reduce Poverty? A Synthetic Control Approach,” published in Economic Development Quarterly on September 20, 2019. 

Bundrick and Yuan use evidence from Arkansas’s Quick Action Closing Fund (QACF) to analyze how effective deal-closing funds are at increasing incomes and decreasing poverty at the county level. Their results indicate that the funds are ineffective at achieving these goals. 

For more of ACRE researchers’ work on targeted economic development incentives, go here.

Bundrick’s latest publication, “Government Accountability – 5 Fixes for Arkansas’s Quick Action Closing Fund” is a policy review highlighting five ways Arkansas officials could improve the Quick Action Closing Fund.

For a summary of the costs of Arkansas’s Quick Action Closing Fund, go here.