Poster Paper: Assessing the Effectiveness of Entertainment Industry Incentives for Firm and Employment Growth

Thursday, November 8, 2012
Liberty A & B (Sheraton Baltimore City Center Hotel)

*Names in bold indicate Presenter

Ric Kolenda1,2 and Cathy Liu1, (1)Georgia State University, (2)Georgia Institute of Technology

After witnessing the success of Canadian strategies to attract US film production in the 1990s, states and localities began offering financial incentives to lure film and video production away from their traditional hubs in California and New York. This effort increased dramatically in the 2000s, both in scope and in scale. Production activity can now locate in states offering rebates of up to 40 percent of costs, even if this exceeds their actual tax bills, and all but a handful of states offer some form of direct cash incentives. One study estimates that states committed about $1.5 billion in 2010 alone. While some states may be reducing incentive packages in the current climate of fiscal austerity, others are doubling down on that strategy as an effort to stimulate job growth and increased economic activity. And while most states tout many successes from these programs in both metrics, we do not know whether such policies are effective in promoting long-term sustainable economic development.

Using regression analysis on data from the Economic Census (EC) and American Community Survey (ACS) over the years 2002-2008, we examine whether higher incentives increase industry and occupational employment. Theory suggests that the growth in industry firms and employees in each state will rise with its level of tax credits. However, we also hypothesize that since the states are competing for this business, that the rate of the subsidies and whether they are rising or falling will correlate positively with employment and the number of firms in the film industry. The dependent variables will be the number of firms and employees in the film industry, the number of individuals employed in the film industry, and the number of individuals employed in film-industry-related occupations.

The key independent variable will be the incentive level, but adjustments will be made for the type of incentive (rate, transferability, and sales and use tax exemptions), the number of months in effect, the state’s relative ranking of incentive levels offered, and whether the incentive rose or fell from the previous year). Other independent variables will include total employment and firms for the state in all industries, and the national growth in each for the film industry.

This study will not consider employment and firms working in projects in states other than their home states. But while this may be an important consideration for the overall economic impacts of film industry incentives, our purpose here is only to view the impact on sustainable economic development of the industry cluster, which we are defining as the growth of in-state workers and firms.