Do Economic Development Incentives Crowd out Public Expenditures in U.s. States?

DO ECONOMIC DEVELOPMENT INCENTIVES CROWD OUT PUBLIC EXPENDITURES IN U.S. STATES? Jia Wang Abstract: This paper sets out to investigate whether incentives spending crowds out public spending in U.S. states. Using data from an evolving national database, this paper employs a two-way fixed effect panel framework and GMM approach to account for the dynamic features associated with public expenditures. Potential endogeneity of policy variables and problems with unbalanced panels are also considered. Estimation results indicate that incentives expenditures are significantly and negatively associated with public expenditures, particularly for some productive public goods. Findings of this paper carry practical importance for policymakers concerning the efficacy of incentives.