Estimating Costs and Benefits of Economic Growth: A CGE-Based Study of Tax Incentives in a Rapidly Growing Region

Municipalities have used tax incentives to attract manufacturing firms to counteract market failures, mobilize resources in blighted areas, and engage in bidding wars with other jurisdictions. These reasons have typically been remedies for regions experiencing unemployment and low growth. However, high growth areas still use tax incentives to manage growth. In these cases, the costs of growth, especially related to congestion, pollution, costs of city services and rising prices, must be compared to economic benefits resulting from a tax incentive. The case study in this paper is based on a proposal to the city of Fort Collins, Colorado by Hyundai Corporation, who requested a $25.5 million use tax rebate. This paper uses a data intensive computable general equilibrium (CGE) model to estimate endogenously the costs and benefits of growth. Results of the analysis suggest an $18.15 million rebate was warranted.

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Journal of Regional Analysis and Policy, Volume 34, Issue 4
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 Record created 2017-04-01, last modified 2018-01-22

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