Impact of tax incentives on industrial development in selected Southeast states

In order to improve their competitiveness in attracting industry, states are relying heavily on various tax incentives as a means to induce industrial development. The relative importance industry places on such incentive programs is debatable. While many factors exist which determine the location of an industry, this study investigated the impact of tax incentives in attracting industry to specific states. Data were collected from 183 industries which announced plans to locate in one of four states--Alabama, Mississippi, Louisiana and South Carolina. The four states used in this study were selected based on their growth and quantity of tax incentive programs utilized in attracting industry. Cross tabulation analysis and Spearman Rank Correlation Coefficient were computed to assess the relative importance of tax incentives and general characteristics of those industries locating in the four states.

Results of the analyses indicate that industry as a whole considers tax incentives as moderate importance as a location factor. There appears to be no significant relationship of tax incentives as a location factor between industries which are capital intensive or labor intensive though the latter view such programs slightly higher. Individuals involved in economic development within the four states consider such incentive programs as of major importance in recruiting industry.

The major tax incentive programs and the ones most important to industry are those which exempt taxes on equipment and machinery, land and improvements and inventories. States appear to be placing more emphasis on tax incentives and the trend is toward a greater diversity in programs rather than reduction.