blog of U.S. News & World Report Matthew Mitchell points out that each of the top films has received huge tax credits or subsidies (both in the United States and the United Kingdom) and provides a fine list of reasons why these are such bad deals for taxpayers, presented in award show format:It doesn’t matter whether or not you saw any of this year’s top Oscar-nominated films. Depending on what state you lived in, you may have paid for it anyway. At the Economic Intelligence
1. Best economic argument — film subsidies don’t work as advertised: Film companies and their lobbyists have sold these schemes to some 45 states on the grounds that subsidies and tax breaks today will somehow “pay for themselves” through more revenue tomorrow (call it M.C. Escher economics). But if this sounds too good to be true, that’s because it is. As my colleague Adam Thierer has noted, eight out of 10 studies of the subject find that these schemes lose more revenue than they generate. The two studies finding positive effects were both paid for by state film offices.
This finding is consistent with a large literature on firm-specific or “targeted” economic development strategies. As a recent study puts it, “the wisest course of action for most cities would be to eschew particularized development incentives, especially those that require tax expenditures.”
2. Best supporting economic argument — film subsidies encourage unsustainable economic models: With its abundant sunshine, Florida is ideally suited to the production of citrus; and with its large concentration of engineers, Silicon Valley is ideally suited to the production of advanced technology. These comparative advantages may change as tastes and technology change. At least for now, however, it makes sense to grow oranges in Florida and to develop technology in Silicon Valley. That’s because these economic models are based on what economists Frederic Sautet and Pierre Desrochers have called “regional realism.”
The fundamental problem with targeted economic development incentives is that they attempt to foster fundamentally unrealistic economic models. If film producers in your state do not have a comparative advantage in producing a particular movie, they shouldn’t be producing it. Policymakers are building unsustainable economic models when they incentivize the development of an industry that cannot survive except by dint of its government-granted privileges.