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The Review of Austrian Economics

, Volume 28, Issue 3, pp 337–356 | Cite as

The political economy of state-provided targeted benefits

  • Christopher J. Coyne
  • Lotta MobergEmail author
Article

Abstract

The governments of American states often attempt to incentivize businesses to locate within their borders by offering targeted benefits to particular industries and companies. These benefits come in many forms, including business tax credits for investments, property tax abatements, and reductions in the sales tax. Despite good intentions, policymakers often overlook the unseen and unintended negative consequences of targeted-benefit policies. This paper analyzes two major downsides of these policies: (1) they lead to a misallocation of resources, and (2) they encourage rent-seeking and thus cronyism. We argue that these costs, which are often longer-term and not readily observable at the time the targeted benefits are granted, may very well outweigh any possible short-term economic benefits.

Keywords

H1 H2 H3 P16 

JEL classification

Target benefits Economic calculation Cronyism 

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© Springer Science+Business Media New York 2014

Authors and Affiliations

  1. 1.Department of EconomicsGeorge Mason UniversityFairfaxUSA

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