Economic Development Incentives Boost US Income Inequality, Study Finds

New research examines the role of economic development incentives in shaping income inequality across U.S. states.

The study reveals these incentives disproportionately increase inequality through a redistributive effect, allowing high-income individuals and entities to retain more earnings.

Key Findings:

• Economic dev't incentives have a significant redistributive impact on state-level income inequality
• This effect operates by reducing the redistribution from wealthy firms/investors/employees through taxes
• The findings are robust across different measures of incentive spending

Mechanism Analysis:

While some might expect these incentives to reduce inequality by attracting jobs, this new analysis shows they primarily exacerbate disparities in US states.

The research demonstrates that state efforts to promote economic development may ironically increase income inequality.