Business Incentives in Kentucky
In the recent years, it has become a common strategy to offer incentives to businesses as a means of trying to keep them from moving from the state. In the United States, many states as well as local governments use these incentives hoping that they would attract very good projects. One of the states that offers this incentive is the state of Kentucky. The business incentives in Kentucky include the tax incentives, financing incentives and training incentives. This paper gives a report on the effectiveness of the economic development strategy that has been implemented in Kentucky and that is the business incentives.
Hoyt, Jepsen & Troske (2007) carried out an analysis to investigate how effective the business incentives in Kentucky were. The purpose of the report was to examine how effective the efforts of the state of Kentucky were in the efforts that they made so as to attract and maintain businesses. The report examines this by looking at the weaknesses of the efforts previously made and the correction of problems in the incentives. The report further looks at the relationship of the business incentives in Kentucky and those in other states who offer competition in terms of attracting businesses. Some of these other states include Illinois, Virginia, Ohio and Missouri.
The report was based on data that was obtained between 1992 and 2004. This is data that was obtained from the state cabinet for economic development. Therefore, through this data, the authors were able to find out the much that each incentive was awarded during this period. Through this data, Hoyt, Jepsen & Troske (2007) also examined the three economic activity measures and these are property values, earnings and employment. During the analysis, the data that was used was annual data. The analysis also examined how the incentive programs impacted the counties which were taken as the smallest analysis unit geographically.
As a way of examining the effectiveness of the incentive programs, the researchers looked at the impacts that they had on the countyâ€™s economic activity. As would be expected, an incentive is supposed to positively impact on the economy and thus leading to its improvement. The methodology involved both short term and long term impacts on economic activity by the incentives. The short term impacts were examined on a two year basis while the long term impacts were examined on a five year basis.
This methodology used has a number of strengths. For instance, it created a more comprehensive analysis since it also examined the county level. This shows that the effectiveness was not only measured at state level but rather at even lower levels and thus increasing the efficiency of the findings. The methodology considered the long term effects which is advantageous. For instance, it took into consideration that when a firm first gets its incentive, it employs a minimum number of employees and thus this may not be a reflection of the long term plans that the firm has. In addition, it considered the fact that an organization exists in a larger community. Therefore, when formed, a firm creates an impact on other businesses that may be present in its area. For such effects to be seen and/or felt, time is required. Therefore, the methodology used was advantageous in that it considered all these factors and that is why analysis was done on both short and long term basis. Thus, the methodology employed took into consideration the fact that to find out the influence that business incentives have on economic growth, one should also find other factors that influence growth.
On the other hand, the methodology has some weaknesses. It does not do an evaluation of and how these incentive programs would influence the decision of a firm whether to locate or even expand within the state of Kentucky. This would be achieved if data would have been obtained from Kentucky on the business incentives that were offered to those firms that considered locating in the state. At the same time, data would have been obtained from other states who tried to have firms locating to their state.
In examination of how effective the business incentives were, it was found out that there was a positive association between the incentive program on tax and the growth in employment as well as earnings in the counties. According to the statistics obtained, increase in the tax incentives resulted to an increase in employment and earnings. Since the research was to examine the effectiveness of the tax, training and financing incentives, statistics were also obtained on the training and programs of financing. Just like the tax incentives, the training program impacted on earnings and employment. Therefore, as the training programs increased, there was a prediction of jobs and earnings increasing. However, the financing incentives did not in any way impact on earnings and employment. Despite the fact that increase in both tax and training incentives led to an increase in employment, the two increased in varied ways. The tax incentive led to a greater increase in jobs than the training incentive.
Since the analysis was done on both long and short term basis, the impact of the incentives on the two terms were compared. The findings revealed that tax and training incentives impacted earnings and employment four times more on long tern than they did on short term.
It was found out that Kentucky is not the only state that uses the business incentives and in addition to that there was nothing unique about their incentives. However, these incentive programs are of a small magnitude. For instance, the tax incentives was found out to be the largest among the three but compared to the earnings of the state, it formed a very small percentage i.e. 0.09%. However, due to the expansion in employment that comes with these business incentives, it might be expected that the local governments expand their infrastructure so as to address the increasing need.
The analysis shows that the business incentives do not lead to a reduction in property values or the quality of life. The purpose of the business incentives is to prevent businesses from moving from the state of Kentucky. Thus they are aimed at developing the state through creation of employment opportunities and thus resulting to its people leading a quality life. This further leads to economic development. Therefore, from the statistics obtained the business incentives have been effective in meeting their purposes.
Hoyt, W., Jepsen, C. & Troske, K.R. (2007). An analysis of incentives to attract and retain businesses in Kentucky. Retrieved from: http://cber.uky.edu/Downloads/BusinessIncentives_Final%20Report_01182007.pdf. Accessed February 8, 2011.
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