How the Economic and Fiscal Benefits of Economic Development Incentives Are Affected by Targeting, Housing Policy, and Incentive Design

Authors

• Timothy J. Bartik, W.E. Upjohn Institute for Employment ResearchFollow

Upjohn Author ORCID Identifier

https://orcid.org/0000-0002-6238-8181

Series

Upjohn Institute Technical Report No. 26-059

DOI

10.17848/tr26-059

Issue Date

October 2026

Abstract

This report finds that reformed state economic development policies can raise residents' per capita incomes by over 5 percent while generating a fiscal surplus exceeding 4 percent of state and local tax revenue. In other words, they can pay for themselves. Traditional policies, by contrast, boost incomes by less than half a percent and carry a net fiscal cost of more than 3 percent of tax revenue. Traditional policies rely on untargeted cash incentives such as tax abatements, credits, and grants, and leave zoning unchanged. Reformed policies instead provide customized business services (site-specific infrastructure, job training, business advice, incubators), target economically distressed areas, and are paired with housing policies that allow construction as populations grow. The main driver is cost effectiveness: customized services cost 40 percent or less per job created than cash incentives. Targeting distressed areas means new jobs raise local employment rather than merely attracting migrants, and expanded housing limits cost-of-living increases that erode gains. These benefits depend on delivering high-quality services at scale, which is harder and less politically appealing than handing out cash.

Sponsorship

The Rockefeller Foundation

Subject Areas

LABOR MARKET ISSUES; ECONOMIC DEVELOPMENT; Local labor markets; Regional policy and planning; Business and tax incentives; Regional collaboration; Urban issues; Transportation and infrastructure; WORKFORCE DEVELOPMENT