MEGA: Explanations

To a casual observer, the findings of the study so far might be hard to understand. MEGA may strike many people as a program that should work. After all, the State of Michigan has invested a great deal of financial and human capital in the authority. Moreover, MEGA is not an unusual program; other states have instituted similar authorities and regularly deploy them in an attempt to lure new business investment.

Yet a review of MEGA’s track record is not encouraging, with many of its results falling far short of initial projections. And while scholarly findings do not flatly deny the possibility of the effectiveness of tax incentive programs like MEGA, neither do they encourage hope that programs like MEGA will have a significant economic impact.

In addition, as reviewed in the previous section, the authors’ detailed econometric model, which is firmly grounded in a considered academic review of past scholarly studies on this subject, has failed to detect a net benefit in employment, income and unemployment rates to Michigan’s counties from MEGA investments during a seven-year period. This finding unfortunately implies MEGA has also failed to bring a significant net economic benefit to Michigan as a whole.

The question that naturally follows is, Why? Given the resources at MEGA’s command and the fact that so many states have similar programs, what reason is there to think that MEGA might not be working?

We will describe four considerations — the last two based on the academic economic literature — that cast doubt on MEGA’s ability to achieve its projected successes and generate reliably significant economic impact. The four items appear in order of specificity, not magnitude; in fact, the first item probably contributes least to the problem of exaggerated expectations for the MEGA program:

  1. the modeling employed by MEGA to project the economic benefits that its tax incentive agreements will bring;

  2. the problem of ensuring MEGA grants are necessary;

  3. the political and business incentives inherent in programs like MEGA that can distort processes designed to ensure rational and effective results; and

  4. the singular nature of data and knowledge in a market economy.