By Caleb Taylor

How effective are Arkansas’s economic development incentives?

Not very, according to ACRE Research Fellow Erica Smith in an op-ed published on May 11 in Arkansas Business entitled “.”

Smith writes about the economic literature on economic development incentive programs such as Arkansas’s Quick Action Closing Fund (QACF) and concludes that the return on investment from such programs don’t match up with the alleged benefits claimed by proponents.

Smith writes:

The QACF disbursed almost $134.8 million between October 2007 and June 2019, state figures show. With such money being spent, we should ask if this program is worth its cost.��The governor and the AEDC commonly publicize new grants from this fund, and each press release typically estimates the amount of job creation and future investment expected to result from the allocation of our tax dollars. For example, in 2019 and create 65 jobs with the help of $300,000 from the QACF.��Empirical evidence generally does not support the claim that these programs create jobs. Stephen Goetz of Penn State University, Mark Partridge and Shibalee Majumdar, both of Ohio State, and Dan Rickman of Oklahoma State University found that these policies were associated with lower statewide job growth from 2000-07.”

A forthcoming paper entitled “Do Politicians Use Targeted Economic Incentives for Political Gains? Evidence from Arkansas Gubernatorial Elections” co-authored by Smith, ACRE Affiliated Researcher and BT����Lecturer I of Economics Jacob Bundrick, and BT����Assistant Professor of Economics Dr. Weici Yuan examines the question of whether there’s a connection between gubernatorial re-election and which counties get economic development incentives.

Smith is one of the fellows in ACRE’s inaugural summer fellowship program. She and other fellows will continue to work on research with a mentor, participate in an online reading group, and professional development training. She will also continue to be a tutor for econometrics.

Smith was also recently named economics student of the year by the .

For more of ACRE researchers’ work on targeted economic development incentives, go here.

A frequently used Arkansas business subsidy program largely fails to increase incomes or lower poverty rates over the long term, according to the latest research from two BT����academics.��

ACRE-Affiliated Researcher and BT����Lecturer of Economics Jacob Bundrick and BT����Assistant Professor of Economics Dr. Weici Yuan’s researched the Quick Action Closing Fund (QACF) and wrote a paper titled “.” It was published in Economic Development Quarterly on September 20th.��

Bundrick and Yuan use evidence from Arkansas’s QACF to analyze how effective deal-closing funds are at increasing incomes and decreasing poverty at the county level. Their results indicate that the funds are ineffective at achieving these goals.��

Created in 2007, the QACF allows the state to provide cash grants to select entities in the hopes of attracting and retaining businesses within Arkansas. From the start of the fund in 2007 to mid-2018, $185.7 million was appropriated to it. These subsidies are awarded to businesses primarily at the discretion of the governor.

Bundrick and Yuan conclude:

Our results coincide with the existing literature, indicating that QACF subsidies were largely ineffective at increasing per capita personal income and decreasing poverty rates in Arkansas’s counties. Few counties home to QACF projects experienced improvements in incomes and poverty rates relative to their counterfactuals. Moreover, the sparse improvements in treated counties generally proved to be temporary shocks rather than lasting improvements. Examining the average effects of the QACF also revealed that the subsidies did not create long-run improvements in per capita personal income and poverty rates. In general, our findings should caution policy makers who wish to improve incomes and poverty rates with targeted business subsidies.

This isn’t the first paper co-authored by Bundrick that questions the alleged benefits of the QACF. Bundrick and ACRE Scholar and BT����Associate Professor of Economics Dr. Thomas Snyder’s paper �� find that QACF subsidies provided to businesses within a given county have no statistically meaningful relationship with private employment per 1,000 population and private establishments per 1,000 population over a four-year period after the subsidies are disbursed.

Bundrick and Snyder concluded that the evidence provides reason to be skeptical of the QACF as a job creator. Their paper was published in the Review of Regional Studies in 2018 and first released by the Mercatus Center.

Targeted incentives are costly both when money is spent and when other opportunities are foregone. This funding could be used for other policies with better returns for Arkansans. Bundrick has repeatedly recommended policymakers prioritize more proven ways to improve economic growth through policies like tax reform, reducing barriers to job creation, and investing in education.��

For more of ACRE researchers’ work on targeted economic development incentives, go here.

Bundrick’s latest publication, “” is a policy review highlighting five ways Arkansas officials could improve the Quick Action Closing Fund.

For a summary of the costs of Arkansas’s Quick Action Closing Fund, go here.