Are state film incentives effective? A National Bureau of Economic Research Working Paper from Patrick Button examines whether the presence of these incentives affected filming location decisions, employment, wages, and spillover effects for the period 1977-2018.

Film incentive characteristics

According to the report:

  • More than 30 states have an active state film incentive (SFI) program (Figure 1)
  • Over the course of the study’s timeframe, on average, 23% of states had a film incentive
  • 70.8% of the study observations were for refundable incentives, which here includes cash rebates, grants, and refundable tax credits
  • 23.4% were for tax credits that are transferable but not refundable
  • 6.7% were for tax credits that are neither transferable nor refundable
  • 100% of the incentives subsidized the wages or salaries of workers who are state residents
  • 94.7% subsidized non-labor expenditures
  • 65.1% subsidized non-resident labor
  • Average subsidy rates were between 18% and 20% of qualified expenditures and have been increasing

Report Findings

State film incentives “have a large and mostly robust effect on the filming location of TV series” and this effect “occurs gradually over time.”

The evidence is less clear for the location of feature films, with results varying by data source (either IMDb or Studio System).

The effects from incentives tend to be concentrated in states with existing industries that are already “medium or large.”

There is some evidence of increases in motion picture production employment associated with incentives, but the total numbers are small — 314 jobs on average. As a point of comparison, the mean motion picture production employment per state per year was 3,299 (median 611).

No meaningful effects were found on the number of establishments or wages in motion picture production. Spillovers to related industries were either nonexistent or had minimal effect on employment among independent artists and for transportation rentals.

The study found no clear relationship between subsidy rates and outcomes. An exception appears to be between the subsidy for resident labor and the number of feature films. Similarly, there were few connections found between incentive characteristics and economic development outcomes.

Implications

Are the positive and significant – but relatively small – outcomes related to production location and industry employment sufficient to deem the incentives “effective?” The author indicates the answer is “no.”

Thus, while SFIs relocate TV series filming this increase in filming leads neither to the development of a local film industry nor to any meaningful spillover to related industries. This means that SFIs do not achieve two of their primary goals: establishing a local film industry or creating economic development in general.

The conclusion takes this assessment a step further and suggests that since incentives are not effective in a footloose industry like film and TV production, the probably are not effective in other industries either.

This seems to be an extreme take. The analysis did, in fact, find significant effects on both production location choices and employment. One also might expect the influence of these (or other) incentives on an entire industry sector to be limited given the small number of incentive recipients relative to the total number of establishments and workers. Total spending on incentives is also not considered. Finally, the film industry’s operation and film incentive design and implementation are not typical.

However, to the extent that policy makers expect to grow entire industries or move the needle on economy-wide employment from modest incentive programs, we tend to agree that this is an unlikely outcome. Incentives at their best play a supporting, not a leading, role in driving economic development.

For more information, please see Do Tax Incentives Affect Business Location and Economic Development? Evidence from State Film Incentives: https://www.nber.org/papers/w25963

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