The Problems With Targeted Tax Incentives

John Shoaf and I have a new study out. Local Tax Incentives in Action: The Payment-in-Lieu-of-Tax Program in Memphis, Tennessee is a study of Memphis and Shelby County’s “PILOT” program. The study, published in the Policy Series of The Mercatus Center at George Mason University, finds that the program’s focus on using tax policy to attract economic activity is valid, but questions the reliability of existing estimates of programmatic impact and cautions against the discretionary nature of the program which creates incentives for lobbying and political gamesmanship. After discussing the limits of the PILOT and similar targeted tax incentive programs, we offer concrete solutions. In my view, this study is a very good example of the logic of economics in policy debates. (See here to download the study.)