One of the cornerstones of a dynamic and competitive economy is entrepreneurship. While the U.S. federal government has numerous programs to support entrepreneurship, there are also many policies—particularly at the state and local levels—that are not conducive to new business entry and growth. One important example of those policies is economic incentive programs, which states use to target large firms (sometimes a single large business) that are considering relocation or expansion within the country. Recent analyses indicate that states spend $45 billion to $80 billion annually on these incentives, which have been criticized as inefficient and anticompetitive, even by some governors and economic development officials who have used them. However, basic collective action problems prevent any state from unilaterally eliminating these incentives: businesses might migrate to states that continued to provide incentives. I therefore propose a federal Main Street Fund that would encourage states to redirect incentive payments toward initiatives that foster a competitive environment for all businesses, most notably for both new businesses and small businesses. The federal government would provide funds for any state that diverts money from its traditional economic incentives to invest in the foundations of a more competitive economy, including funding management training for new entrepreneurs, modernizing licensure programs, and investing in broadband and other initiatives to support the creation of new businesses.
Report Produced by The Hamilton Project