Category Archives: Economy

Environment, Equity, and Economic Development Goals: Understanding Differences in Local Economic Development Strategies

Source: Xue Zhang, Mildred E. Warner, George C. Homsy, Economic Development Quarterly, OnlineFirst, Published June 6, 2017

From the abstract:
What role do local governments play in promoting sustainable economic development? This study uses a 2014 national survey to analyze the relationship between local environment and social equity motivations and the kinds of economic development strategies local governments pursue (business incentives or community economic development policies). Municipalities that pay more attention to environmental sustainability and social equity use higher levels of community economic development tools and lower levels of business incentives. These places are also more likely to have written economic development plans and involve more participants in the economic development process. In contrast, communities that use higher levels of business incentives have lower income and are more dependent on manufacturing employment. Other capacity measures do not differentiate types of economic development strategies used. This suggests that sustainable economic development strategies can be pursued by a broad array of communities, especially if the motivations driving their economic development policy include environment and equity goals.

State Budget Update – Spring 2017

Source: National Conference of State Legislatures, May 2017

From the introduction:
Nearly eight years after the end of the Great Recession, states are again facing budget challenges. Over the past few years, states have consistently struggled with slow revenue growth, and this year is no exception.

Many states describe their fiscal situation as stable in the near term, but slow revenue growth could lead to more fiscal challenges in the future, especially if there is a downturn in the national economy. Demographic changes, low energy prices, and a sluggish agricultural economy are also plaguing some state budgets. This report highlights results from NCSL’s most recent survey of legislative fiscal officers about state budget conditions

Investing in Climate, Investing in Growth

Source: Organisation for Economic Cooperation and Development (OECD), ISBN: 9789264273528 (PDF), May 2017

This report provides an assessment of how governments can generate inclusive economic growth in the short term, while making progress towards climate goals to secure sustainable long-term growth. It describes the development pathways required to meet the Paris Agreement objectives and underlines the value of well-aligned policy packages in mobilising investment and social support for the transition while enhancing growth. The report also sets out the structural, financial and political changes needed to enable the transition.

The Jobs That Weren’t Saved

Source: Sean Gregory, Time, May 18, 2017

…. If Trump’s Carrier deal was a reminder of how the bully pulpit could be used to make the private sector bend, Rexnord’s closure shows its limits–and offers a lesson in the challenges of reversing a global economic trend decades in the making. …. Some 19.5 million Americans held manufacturing jobs in 1979, an all-time high. By 1983, the figure was already down to about 16.7 million. By 2024, according to projections from the Bureau of Labor Statistics, just 7.1% of Americans will work in manufacturing.
The reasons are many, but the prime culprits are globalization and automation. In 1991, China accounted for 2.3% of the world’s manufacturing exports. In 2001, the country joined the World Trade Organization, and by 2013, China’s share of global exports was 18.8%, according to a 2016 study in the Annual Review of Economics. Countries such as Mexico and the Philippines have also increased their exports. Labor in these markets tends to be substantially cheaper than in the U.S., and trade deals like NAFTA make it easy for American companies to produce goods in far-flung locales. To economists, however, America’s shrinking manufacturing jobs have less to do with free trade than with robots. ….

How States Are Improving Tax Incentives for Jobs and Growth: A national assessment of evaluation practices

Source: Josh Goodman and Jeff Chapman, Pew Charitable Trusts, May 2017

From the overview:
Tax incentives—including credits, exemptions, and deductions—are one of the primary tools that states use to try to create jobs, attract new businesses, and strengthen their economies. Incentives are also major budget commitments, collectively costing states billions of dollars a year. Given this importance, policymakers across the country increasingly are demanding high-quality information on the results of tax incentives.

In the last five years, 27 states and the District of Columbia have made progress in gathering evidence on the results of their economic development tax incentives. Ten of these states are leaders in tax incentive evaluation. They have well-designed plans for regular reviews, experience in producing quality evaluations, and a process for informing policy choices. No state met these three criteria five years ago.

State Tax Incentive Evaluation Ratings
Source: Josh Goodman and Jeff Chapman, Pew Charitable Trusts, May 3, 2017

Tax incentives—including credits, exemptions, and deductions—are one of the primary tools that states use to try to create jobs, attract new businesses, and strengthen their economies. Incentives are also major budget commitments, collectively costing states billions of dollars a year. Given this importance, policymakers across the country increasingly are demanding high-quality information on the results of tax incentives.

Staff members of The Pew Charitable Trusts have assessed each state on the extent to which it has taken three steps to successfully evaluate tax incentives: making a plan, measuring the impact, and informing policy choices. These criteria were selected because they lead to regular, high-quality analyses that lawmakers use to improve the results of the state’s economic development efforts.
These ratings, originally published in May 2017, will be updated as state practices change.

‘Competitive’ distractions

Source: Josh Bivens and Hunter Blair, Economic Policy Institute, May 9, 2017

From the summary:
Cutting corporate tax rates will not create jobs or boost incomes for the vast majority of American families.

What proponents of corporate tax cuts argue: A central argument proponents of corporate tax cuts make is that U.S. corporations face higher tax rates than those of our peer countries; they claim that this differential hurts U.S. “competitiveness” (a word they rarely define) and discourages companies from investing in the U.S. Consequently, they further claim that cutting corporate tax rates would increase American companies’ “competitiveness,” which they imply (but rarely argue directly) would redound to the benefit of most American families.

What this report finds: We find their central argument—that U.S. corporations face high corporate taxes—to be empirically false. While U.S. statutory tax rates are higher, the effective tax rate paid by corporations is in fact roughly equivalent to the effective tax rates of our peer countries, due to loopholes in the U.S. tax code. Further, we find that even if the effective corporate tax rate were higher (if loopholes were closed), economic theory and data do not support the idea that cutting these rates would encourage further investment in the U.S. or benefit Americans in general; we find that such cuts would primarily benefit a small number of high-income capital owners while increasing the regressivity of the tax system overall.

Recommendations: If we wish to reform corporate tax policy to benefit the vast majority of Americans—and not just a wealthy few—we should not be talking about lowering corporate tax rates or offering other tax breaks to corporations; we should instead be focusing on closing loopholes in the system that have eroded the corporate income tax base, to ensure the corporate sector is paying its appropriate share of taxes…..

Workers Made Germany Into the World’s Best Economy

Source: Noah Smith, Bloomberg View, April 18, 2017

Let’s hope U.S. policy makers have woken up to the fact that the country is in a period of sclerosis, where its economic institutions seem to be inefficient along a variety of fronts. When things aren’t working, one good idea is to look around and see which countries are doing better. Right now, Japan is one such country. But in many ways, Germany looks like the most successful economy in the developed world….

….What is Germany doing right? The country has a very large state sector, generous welfare spending and a trade unionization rate almost twice that of the U.S. Though the country did undertake a few free-market reforms in the early 2000s, there has been no major wave of deregulatory mania. Nor did Germany escape the 2008 financial crisis or the Great Recession, both of which hit it hard. In fact, political and financial instability in the European Union probably was a drag on the country.

A new article by economists Christian Dustmann, Bernd Fitzenberger, Uta Schönberg and Alexandra Spitz-Oener proposes a theory for the German revival. Essentially, they say, it’s all about exports and unions…..
Related:
From Sick Man of Europe to Economic Superstar: Germany’s Resurgent Economy
Source: Christian Dustmann, Bernd Fitzenberger, Uta Schönberg, Alexandra Spitz-Oener, Journal of Economic Perspectives, vol. 28, no. 1, Winter 2014

From the abstract:
In the late 1990s and into the early 2000s, Germany was often called “the sick man of Europe.” Indeed, Germany’s economic growth averaged only about 1.2 percent per year from 1998 to 2005, including a recession in 2003, and unemployment rates rose from 9.2 percent in 1998 to 11.1 percent in 2005. Today, after the Great Recession, Germany is described as an “economic superstar.” In contrast to most of its European neighbors and the United States, Germany experienced almost no increase in unemployment during the Great Recession, despite a sharp decline in GDP in 2008 and 2009. Germany’s exports reached an all-time record of $1.738 trillion in 2011, which is roughly equal to half of Germany’s GDP, or 7.7 percent of world exports. Even the euro crisis seems not to have been able to stop Germany’s strengthening economy and employment. How did Germany, with the fourth-largest GDP in the world transform itself from “the sick man of Europe” to an “economic superstar” in less than a decade? We present evidence that the specific governance structure of the German labor market institutions allowed them to react flexibly in a time of extraordinary economic circumstances, and that this distinctive characteristic of its labor market institutions has been the main reason for Germany’s economic success over the last decade.

The Wage and Job Impacts of Hospitals on Local Labor Markets

Source: Anne M. Mandich, Jeffrey H. Dorfman, Economic Development Quarterly, Vol 31, Issue 2, 2017
(subscription required)

From the abstract:
This study examines the impact of hospitals on local labor markets in rural and urban counties. We measure the ability of hospitals, particularly in rural communities, to attract nonhealth-related employment and provide higher wage jobs to residents based on their education level. Results find hospital employees with an associate’s degree can expect a 21.4% wage premium, when compared with alternative opportunities, and those with a bachelor’s degree can earn 12.2% more working in a hospital. Hospitals are shown to be positively related to overall employment as well as exhibit positive employment spillover. For rural counties, a short-term general hospital is associated with 559 jobs in the county, 60 of which are hospital based and 499 are non–health care related. With the positive benefits on wages and non–health care job growth, hospitals have measurable positive labor market outcomes above their primary objective of providing health care access, particularly in rural counties.

States Weigh the Price of Financial Incentives for Business Development

Source: Lisa Mckinney, Capitol Ideas, Vol. 60, No. 2, March 2017

Financial incentives for economic development are intended to motivate a business to locate or relocate in a specific state, expand their facilities or create more jobs. GASB 77 is reflective of a shift in state legislatures to more closely track the efficacy and return on investment of tax abatements and other financial incentives for economic development.