Do State Economic Development Incentives Create Jobs? An Analysis of State Employment Tax Credits

Abstract

Employment tax credits have become one of the primary tools of state economic development policy. A recurring question is whether these credits create jobs that would not have been created in their absence. This paper provides estimates of the employment impact of such credits by comparing the employment change in eligible firms that participate in employment tax credit programs with eligible firms that do not participate in such programs. Results from a switching regression model indicate that firms taking Georgia's Jobs Tax Credit created 23 to 28 percent more jobs than eligible firms not taking the credit between 1993 and 1995. The cost per job is $2280 to $2680 over the 1993 to 1995 period. While the maximum number of jobs potentially attributable to the program is small, the cost per job is also low especially when compared with firm-specific incentive packages.

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