Pass the Bucks: Credit, Blame, and the Global Competition for Investment

The competition between governments for international capital is fierce, with cash-strapped governments often providing generous tax holidays, abatements, and other forms of incentives to reduce the tax burdens of individual firms. Between 2010 and 2012, there have been more than 5,000 documented cases of countries, states, provinces, and cities using such investment incentives to lure new projects, encourage expansion of sites, or retain companies after threats to move—all in the name of creating or saving jobs. ICAincentives, a for-profit incentive tracking company, finds that such financial incentives are far from trivial, averaging more than 20 percent of capital investment and amounting to more than $58,000 per job created.1 In fact, their figures understate the total universe of incentives, as many countries do not provide the same level of transparency in their incentive programs as the United States, Canada, and European Union members do. As we document in “Competing for Mobile Capital” of this paper, investment incentives are widespread across the developed and developing world and are becoming increasingly costly.

Investment incentives are not new. The first documented tax incentive package dates back to 1160, when Italian local governments bid for a textile production facility (Wells 1999). In the United States, the first recorded incentive occurred with New Jersey's luring of Alexander Hamilton's manufacturing company in 1791 (Bernstein 1984). What has changed since these incidents is how common this strategy has become for countries, states, provinces, and cities. ...




 

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