Are subsidies worth it?: How to calculate costs and benefits of business incentives.
Government Finance Review › Vol. 11 Nbr. 5, October 1995
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Summary
Chicago, Illinois - Includes related articles
The Chicago Dept. of Planning and Development asked the University of Illinois at Chicago's Center for Urban Economic Development (CUED) to develop a method by which the city government can calculate the costs and benefits of business incentive packages in 1992. The city government was under criticism at the time for not offering more incentives to catalog clothing firm Spiegel, whose departure caused the loss of over 1,000 jobs in the city. The CUED developed a cost-benefit spreadsheet based on an econometric model of the local economy. The spreadsheet may be used in other cities and states simply by inputting the corresponding local data.See the full content of this document
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Are subsidies worth it?: How to calculate costs and benefits of business incentives.
A cost-benefit spreadsheet based on an econometric model of the local economy is being used by analysts in Chicago's Department of Planning and Development to improve the economic and fiscal information available for making decisions about business subsidies. By substituting local data, the spreadsheet can be used in other cities and states.
Governments rarely have good information about the actual costs or benefits of a business incentive package. When negotiating incentives for a firm expansion or new location, it is difficult to assess the long-term effects on the local economy as a whole or to the government's own fiscal condition, and government officials admittedly often do not know the real cost of what they are putting on the table or the value of what the firm is offering. This may result in offering firms more than the ultimate benefits are worth or offering too little. In the summer of 1992, the catalog clothing company Spiegel rejected the City of Chicago's final offer of incentives to keep the national warehousing and distribution center in Chicago and decided to leave for Columbus, Ohio, taking more than one thousand jobs with it. Public criticism was swift and strong - why did the city not offer more? Was its package too little, too late? This reaction was quite a contrast with the public outcry a few years earlier, whe...See the full content of this document
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