Comments on “The Economics of a Targeted Economic Development Subsidy” by Mitchell, Farren, Gonzalez, and Horpedahl*
Research Report: December 18, 2019
By: Noah Williams, Center for Research on the Wisconsin Economy
In 2017 the state of Wisconsin agreed to an unprecedented agreement, both in the scale of the project and the accompanying state subsidies, for a planned large-scale manufacturing plant by Foxconn. While Foxconn’s plans are uncertain and have changed over time, a recent report by Mitchell, Farren, Gonzalez, and Horpedahl (2019) used the Foxconn agreement as an illustration of the economics of targeted government subsidies. While they raise a number of important points about the negative consequences of government-provided development subsidies, a complete cost-benefit analysis of the Foxconn deal does not support their conclusion that, “the subsidy may depress state economic activity by tens of billions of dollars over the next 15 years.” Apart from other issues, their results assume that Foxconn would likely have located in Wisconsin with no subsidy at all, and thus discount 50-98% of all activity Foxconn would generate. Instead, taking full account of the costs and benefits suggests net benefits of $34 billion at my midpoint estimate for the original plant, or roughly $8 billion for a smaller plant as is now planned. However this finding does not argue for the Foxconn incentive package or government incentives more broadly, which are generally inequitable and inefficient.