An Introduction to the Bartik Benefit-Cost Model of Business Incentives

Authors

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

Upjohn Author ORCID Identifier

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

Issue Date

May 2023

Abstract

This short report provides an introduction to a new model of the benefits and costs of business incentives to promote state economic development. This model provides potential users—anyone interested in evaluating an incentive project or incentive program in their state—with a model that can be used for practical evaluation purposes, such as deciding whether or not a project should be undertaken, whether or not to expand or terminate a current incentive program, or how an incentive program could be improved by reforms to have higher net benefits. What is most distinctive about the model is that it focuses on how incentives potentially affect the real after-tax incomes per capita of state residents. Effects on per capita incomes are calculated for different income types and different income groups. Positive effects, such as increasing earnings per capita, are included, as well as potential negative effects, because growth may increase local costs, and because paying for incentives may have negative economic effects. This introduction is backed up by a lengthier report (Bartik 2023), which gives further model details.

Sponsorship

The Pew Charitable Trusts

Subject Areas

LABOR MARKET ISSUES; ECONOMIC DEVELOPMENT; Local labor markets; Regional policy and planning; Business and tax incentives