Allocative efficiency
No resources are wasted—a situation where no one can be made
better off without making someone else worse off.
Business climate
Tax structure, availability and quality of public services, environmental
regulations, employment regulations, education/quality of labor force,
physical infrastructure (highways, utilities, etc.) quality of life
(crime, health, etc.), and other factors that affect the ease and profitability
of doing business in a particular region.
Clawbacks
Provisions that allow a government to revoke or require to repay incentives
if a company doesn't achieve its promised objectives.
Commerce Clause
Section 8, clause 3, of the U.S. Constitution: [Congress has power]
"to regulate Commerce with foreign Nations, and among the several States,
and with the Indian Tribes." Incentive opponents say Congress should
use the Commerce Clause to enact legislation that prohibits states from
using incentives to compete with one another for businesses.
Cost-benefit analysis
Cost-benefit analysis is the examination of a public project and the
evaluation of its total costs and benefits to all concerned.
"Dormant"or "negative" Commerce Clause
The Supreme Court developed this doctrine to strike down state laws
that it has determined excessively burden interstate commerce in
the absence of congressional action.
Economic development agencies
Many state and local governments have agencies responsible for attracting
and retaining firms. These agencies promote business and industry by
providing services to local companies and recruiting businesses from
other regions, sometimes by offering special incentives.
Externality
Essentially, a side effect: costs or benefits of a transaction that
are borne by a third party, which can include society in general. Because
they are not accounted for in private business decisions, government
uses taxes and subsidies to correct for externalities. A widely used
example of a negative externality is pollution.
Federalism
The theory of government by which the United States is organized: Power
is shared between the national and state governments.
Incentives
Government policies designed to attract business and industry, such
as direct subsidies, preferential taxes, loans with below market interest
rates, development of physical infrastructure, such as roads and buildings,
and job training.
Industrial revenue bonds
A special classification of municipal bonds typically issued by a municipality
to provide funds, for example, for the building of a plant to the specifications
of a private company. The company is granted a long-term lease to the
plant at a rental price adequate for the municipality to make the interest
and principal payments on the bonds. Also called Industrial Development
Bonds, or IDBs.
Market failure
A situation where a market economy fails to attain allocative efficiency.
Two common causes of market failure are externalities and inadequate
provision of public goods.
Market prices
Prices set by the market and by the law of supply and demand.
Price mechanism
The price mechanism is the method through which the market organizes
and adjusts itself. Prices determine what is produced, how it's produced
and who receives the product. If the market is working correctly, the
workings of the price mechanism should result in the most efficient
allocation of resources.
Public good
A pure public good is characterized by its nonexclusive nature: anyone
can benefit from it, and a person's use of the good does not diminish
the benefits anyone else may receive from it. Public goods in general
do not fit these qualifications exactly, but follow the same general
principle. For instance, one person's use of a road does diminish slightly
the benefits another might gain from it, but roads are still public
goods. The private market often doesn't supply public goods adequately;
therefore, public goods are usually produced by the government, such
as roads, education and national defense.
Social cost/social benefit
The cost/benefit of the production of a good or service to the producer/consumer
including costs/benefits borne by other members of society.
Targeted incentives
Incentives that benefit a specific company (e.g., loans at below-market
interest rates or tax breaks) ? not general economic policies of the
government that improve the business climate (e.g., corporate tax reductions).
Tax-increment financing (TIF)
TIF is a real estate redevelopment technique that allows a company to
finance land acquisitions or improvements by borrowing money tax free
(thus reducing interest rates) and lets companies purchase renovated
sites or buildings at below-market costs.
Zero-sum game
A situation in which some gain, some lose and in the end there is no
overall gain or loss. A positive-sum game results in some losing and
some gaining with an overall gain, while a negative-sum game results
in some losing and some gaining with an overall loss. Incentive opponents
use the zero-sum game and negative-sum game theories to argue that targeted
incentives don't improve the national economy and may even hurt it.
Incentive supporters use the positive-sum game theory to argue that
targeted incentives improve the national economy.