By Caleb Taylor
Is there a connection between getting re-elected and which counties get economic development incentives?
A new working paper entitled “Do Politicians Use Targeted Economic Incentives for Political Gains? Evidence from Arkansas Gubernatorial Elections” co-authored by ACRE 
Undergraduate Research Fellow Erica Smith, ACRE Affiliated Researcher and UCA Lecturer I of Economics Jacob Bundrick, and UCA Assistant Professor of Economics Dr. Weici Yuan examines this question.
According to the abstract of the paper:
State and local governments spend billions of dollars a year on economic development incentive (EDI) programs in an attempt to attract and retain businesses within their localities. Among these programs, targeted economic incentives allow governments to award discretionary cash grants to select individual companies. However, such policies are generally found to contribute very little to economic performance such as growth, employment, and poverty. This paper investigates political gains from targeted incentives. Using Arkansas’ gubernatorial elections data between 2006 and 2018, we find the evidence suggests that Arkansas’ targeted incentives such as Quick Action Closing Funds and Create Rebate do increase the likelihood that the incumbent party wins the election in the recipient counties. However, there is no evidence that the government strategically direct business subsidies to counties with close votes in the previous elections.”
Smith is a part of ACRE’s Research Fellowship Program. In this program, students work with a professor to write a publishable research paper.
Smith is from Vilonia, Arkansas. She is a senior majoring in Economics and is considering a career in the global supply chain after graduation.
Bundrick and Yuan also 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 used 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.