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Financing Film Through Aggressive Tax Incentives–A Losing Proposition for the States?

October 11, 2011
By Alexander Malyshev

This paper, written by Alexander Malyshev and published in the New York Law School’s Media Law & Policy journal, examines how state governments’ targeted economic development incentive programs create taxpayer-funded bidding wars.

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This paper, written by Alexander Malyshev and published in the New York Law School’s Media Law & Policy journal, examines how state governments’ targeted economic development incentive programs create a taxpayer-funded bidding war benefiting film production companies.

More state governments are trying to lure movie production companies to their states, Malyshev writes, creating a bidding war with taxpayers’ money.

“Over the years, the number of state programs exploded, with at least forty-two states now participating in some capacity,” Malyshev writes. “Two interrelated policy considerations result from this rapid growth: over-saturation of the marketplace, and a ‘race to the bottom’ with the generosity of the incentives.6 In the process the states may forego valuable opportunity costs that could produce a greater return on their investment.”

States’ interests and film producers’ interests are opposed, not aligned, Malyshev writes.

“Because the interests of the producers and the states are diametrically opposed—the former vying for bigger incentives and the latter for greater returns on their investment—aggressive competition among the states favors the producers to the detriment of the states,” Malyshev writes. “If competition persists (or increases) it may even become a challenge to hold on to the gains already made, let alone successfully build entirely new industries. States must recognize that such competition is economically detrimental to them, and that while big productions can infuse large sums of money into a local economy, better uses for state funds, which may produce greater returns on their investment, may exist.”