Federal Policy Towards State and Local Economic Development in the 1990s
Upjohn Institute Staff Working Paper 93-17
Timothy J. Bartik
March 1993
Abstract
This paper suggests new federal policies towards state and local economic development
assistance to business. I argue that there is some evidence that these programs can be effective
in encouraging business growth and helping the unemployed. But state and local governments
do not have the right incentives to adequately pursue national goals through economic
development programs. State and local governments are not inclined to do quality evaluations
of their programs and tend to favor business attraction programs over programs that might
increase U.S. business productivity. In addition, it is unclear whether economic development
efforts are most vigorously pursued by economically depressed areas, in which the national
social benefits of economic development are the greatest. A new federal policy towards
economic development should provide partial federal support for state and local economic
development programs that encourage business productivity. The funding should be coupled
with requirements for rigorous outside evaluation, comparing the performance of assisted and
unassisted firms. Finally, our system of fiscal federalism should be reformed to provide
greater resources for economically depressed areas. This assistance will allow these areas to
be more economically competitive.
NOTE: A revised version of this paper was published in R. Ebel and R. Norton, eds.
Reserach in Urban Economics (Volume 9): Structuring Direct Aid: People versus Places. Greenwich, CT: JAI Press, 1993, pp. 161-178.
Institute Home Page | Back to Staff Working Papers | Back to Research Hub