Imagine you’ve got some money to invest. Would you rather invest it yourself, or ask a friend with a spotty track record of financial success who is always chasing the newest, potentially short-lived fad?
That’s the implicit question for policymakers as they consider Governor Jan Brewer’s proposed “deal-closing” fund. The state would use $25 million to provide taxpayer handouts to firms seeking to relocate to Arizona. But are state governments better than private individuals and businesses at picking winning investments in a competitive global economy?
Government is the equivalent of your friend with the spotty investment record. One of the most comprehensive surveys of the research on state-based economic development projects appeared in the Journal of the American Planning Association in 2004. The authors concluded that, “The most fundamental problem is that many public officials appear to believe that they can influence the course of their state and local economies through incentives and subsidies to a degree far beyond anything supported by even the most optimistic evidence.”
Showering taxpayer money from a $25 million ribbon-cutting fund on a few politically favored companies or industries won’t do much for Arizona’s long-term job growth. On the other hand, creating an attractive investment climate by lowering the tax burden of all businesses – not just for a fashionable few – is a much better approach because investment decisions would be left to the private sector.
Stephen Slivinski is senior economist at the Goldwater Institute.
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