The Employment and Fiscal Effects of Michigan's MEGA Tax Credit Program

Abstract

This paper estimates that Michigan's MEGA tax credit program to attract and retain businesses has large employment and fiscal benefits. MEGA provides discretionary tax credits to businesses, with the tax credit tied to the personal income taxes paid by employees on the new or retained jobs. We estimate the economic effects of MEGA using the Upjohn Institute's REMI model, and the research literature on how business location decisions respond to taxes. We estimate the fiscal effects of MEGA based on the research literature on how government spending and revenue respond to state personal income and population. The estimates suggest a lower bound to MEGA's effectiveness of being decisive in a little over 8 percent of the MEGA projects. Even with this modest success rate, MEGA is estimated to have fiscal benefits that offset about two-thirds of its gross fiscal costs. The net fiscal costs per job created of MEGA average less than $4,000 per job-year, which is less than the labor market benefits of job creation.State and local economic development policy, tax incentives, fiscal impact analysis, labor market benefits, regional multipliers