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October 02, 2007

Incentives for existing firms

Incentives are often used to attract new firms to North Carolina, and the state now plans to extend such incentives to existing firms. N.C. State University economist Mike Walden explains why. Listen

"Well, of course this is a very hot topic, but the rationale if you were to support this would be that if a firm, for example, is in danger of leaving the state and taking with it its investments and its jobs or if a firm is making a decision about whether to add investments here in the state and they are not sure they want to do that, then incentives may be considered in order to encourage that firm to stay and keep their jobs here or in order to encourage that firm to make those additional investments here in the state," says Dr. Walden, a professor of agricultural and resource economics. "So I think it's a little harder to see than with attracting a new firm here because obviously a new firm is bringing new investments and new jobs. But the point here or the way to look at this I should say is whether you want an existing firm to stay or potentially leave. Now in most cases the new incentives will be not a check written by the state to the firm but it will be a forgiveness of some of the taxes paid by the firm. And what the state will likely do is look at this in a benefit-cost framework and say, alright, if we provide this tax relief will we, however, make more money from the firm in terms of the remaining taxes that it will pay if they stay and don't leave and if they make these investments.

"So the state is looking at this in terms of whether the benefits outweigh the costs, and of course that's a tricky thing to do. But nevertheless the state is trying to establish that," Walden concludes. "So again, the point here is do you want the firm to stay or leave and base your economic calculation on that."

Posted by deeshore at October 2, 2007 08:05 AM