Simulating the Effects of Michigan's MEGA Tax Credit Program on Job Creation and Fiscal Benefits

Abstract

This paper simulates job and fiscal impacts of Michigan's MEGA tax credit program for job creation. Under plausible assumptions about how such credits affect business location decisions, the net costs per job created of the MEGA program are simulated to be of modest size. The job creation impacts of MEGA are simulated to be considerably larger than devoting similar dollar resources to general business tax cuts. The simulation methodology developed here is applicable to incentives in other states. JEL Classification Codes: R11, R23, R28, R30, R58, H70

Job Creation Tax Credits, Fiscal Foresight, and Job Growth: Evidence from US States

“…The Kesselmen et al elasticity of 0.130 is 48% larger than our elasticity of 0.088. We insert CUM Kesselmen = 0.0083*1.48 = 0.012 into equation ( 27) to get the $13,239 cost per job created estimate implied by Kesselman et al More recently, Bartik and Bishop (2009) undertake a detailed simulation exercise of a temporary federal JCTC valued at 15% of the wage cost of new employment in 2010 and 10% in 2011. They conclude that the cost per job created would be $4,656 in 2010 and $6,301 in 2011.…”

“…Federal JCTCs have been much debated in recent years in the U.S. and abroad. 6 For instance, Bartik and Bishop (2009) argue that a "well-designed temporary federal job creation tax credit should be an integral part of the effort to boost job growth." In 2010, a limited JCTC was part of the Hiring Incentives to Restore Employment (HIRE) Act.…”