By Stephen Slivinski
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.
Learn More:
Goldwater Institute: The path to jobs is not through the red ribbon
Goldwater Institute: Corporate Tax Reform: How to Woo Business Without Spending a Dime
Mackinac Center: Literature Review and Analysis
Stephen Slivinski is a senior economist at the Goldwater Institute. He is an expert in tax and budget policy at the state and federal level. He formerly held the position of research fellow at the Mercatus Center at George Mason University and senior editor in the research department of the Federal Reserve Bank of Richmond. Prior to that he was director of budget studies at the Cato Institute, a senior economist at the Tax Foundation, and director of tax and budget studies for the Goldwater Institute. He holds a master's degree in economics from George Mason University. 
