Tax break 'megadeals' spurred innovation in local communities
When cities, counties or states provide corporations with big tax breaks to lure factories, corporate headquarters and other facilities, the economic benefits may go beyond the new jobs and investments the companies bring to their regions.
Tax incentive packages, known as "megadeals" exceeding $50 million, have been found to stimulate innovation in local communities beyond the jobs and investments they bring. Conducted by a scholar at UC Riverside, a study published in the Journal of Accounting Research reveals that these large tax subsidies can encourage innovation among nearby businesses and create a conducive environment for startups.
By attracting skilled inventors, technological expertise and new ideas, megadeals increase patent filings among local businesses. For instance, a $1.3 billion subsidy granted to Tesla for a battery factory in Nevada led to former Tesla engineers starting businesses focused on battery material recycling. Moreover, highly skilled workers from these subsidized companies often take their knowledge and expertise to other local businesses or start their own ventures, contributing to a broader pool of technically skilled workers and fostering innovation throughout the community.
While workforce training programs often accompany these incentives, not all workers may ultimately work for the subsidized company, further promoting knowledge spillovers and innovation. The study emphasizes the importance of understanding the full impact of these tax incentives, including less tangible benefits such as innovation, as governments continue offering such subsidies.
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