Lotteries and Economic Incentives: Governments need better tools to evaluate tax breaks

Key facts:

• Business incentives are like lottery tickets, providing big rewards for governments if you don’t count the costs.
• Government officials decry the perceived need to give incentives to companies.
• Rarely do they examine the full costs and benefits of incentive packages.
• Iredell County modeled the financial costs and benefits of an incentive offered in 2009 and showed a positive net present value for the incentives.
• Any model should factor in
  1. the opportunity cost of forgoing the next best use for the funds
  2. the likelihood the investment would have happened without an incentive.
• The Iredell model did neither of those.
• Factoring in opportunity cost would have reduced the benefit but left the incentive with a positive net present value.
• Factoring in the likelihood of investment without the incentive would have turned the incentive to a money-losing proposition.
• More incentives should be measured that way.

Spotlight 398 Lotteries and Economic Incentives: Governments need better tools to evaluate tax breaks