Combining Rules and Discretion in Economic Development Policy: Evidence on the Impacts of the California Competes Tax Credit

39 Pages Posted: 22 Mar 2021 Last revised: 27 Mar 2021

See all articles by Matthew Freedman

Matthew Freedman

University of California, Irvine - Department of Economics

David Neumark

University of California, Irvine - Department of Economics; National Bureau of Economic Research (NBER); IZA Institute of Labor Economics

Shantanu Khanna

University of California, Irvine

Date Written: March 2021

Abstract

We evaluate the effects of one of a new generation of economic development programs, the California Competes Tax Credit (CCTC), on local job creation. Incorporating perceived best practices from previous initiatives, the CCTC combines explicit eligibility thresholds with some discretion on the part of program officials to select tax credit recipients. The structure and implementation of the program facilitates rigorous evaluation. We exploit detailed data on accepted and rejected applicants to the CCTC, including information on scoring of applicants with regard to program goals and funding decisions, together with restricted access American Community Survey (ACS) data on local economic conditions. Using a difference-in-differences approach, we find that each CCTC-incentivized job in a census tract increases the number of individuals working in that tract by over two – a significant local multiplier. We also explore the program’s distributional implications and impacts by industry. We find that CCTC awards increase employment among workers residing in both high income and low income communities, and that the local multipliers are larger for non-manufacturing awards than for manufacturing awards.

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Suggested Citation

Freedman, Matthew and Neumark, David and Khanna, Shantanu, Combining Rules and Discretion in Economic Development Policy: Evidence on the Impacts of the California Competes Tax Credit (March 2021). NBER Working Paper No. w28594, Available at SSRN: https://ssrn.com/abstract=3809567

Matthew Freedman (Contact Author)

University of California, Irvine - Department of Economics ( email )

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David Neumark

University of California, Irvine - Department of Economics ( email )

3151 Social Science Plaza
Irvine, CA 92697-5100
United States
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949-824-2182 (Fax)

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Shantanu Khanna

University of California, Irvine ( email )

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Irvine, CA 62697-3125
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