For decades, tax incentives have been a major policy tool to spur economic development and attract and retain good jobs. In recent years, however, these incentives have come under heightened scrutiny from the public, with growing concerns over lost tax revenue and localities’ fiscal health.

But tax incentives can influence economic growth and opportunity in cities if they are strategically targeted to the right businesses and business behaviors. With the COVID-19 pandemic triggering budget crises for municipal governments, there is even greater need for them to wield incentives effectively in ways that support inclusive growth, racial equity goals, and fiscal health.

The good news is that cities are experimenting with new evaluative tools and practices that help maximize economic, fiscal, and social benefits. When used together, two of these tools—inclusive incentive scorecards and equity indicators—can allow cities to prioritize areas of high need, understand existing inequities, and ultimately gear tax policies to incentivize specific strategic goals.

An underlying premise of these tools is that when a city tracks and measures specific business behaviors and inequities, it will be better able to define clear tax incentive policy goals from the start. And over time, that city will be better equipped to judge whether certain policy choices are enabling them to meet fiscal health, equity, and inclusive growth goals.

Read the full article about tax incentives by Lourdes Germán and Joseph Parilla at Brookings.