New Study: Funding Public Services is the Best Route to Prosperity

August 11, 2010

For Immediate Release

MONTPELIER—States, including Vermont, have long viewed economic development and funding for public services as competing interests. That’s a false dichotomy. Indeed, rebuilding neglected infrastructure and improving education will reap economic benefits in Vermont far surpassing those achieved by tax credits and other business giveaways.

Those are the conclusions of a new study released today by economist Jeffrey Thompson of the Political Economy Research Institute (PERI) at the University of Massachusetts, Amherst. Thompson’s paper is based on his extensive analysis of research on what works and doesn’t work to create jobs and strengthen state and regional economies. It suggests a better approach to economic development for the New England states as they dig out from the Great Recession that began in late 2007.

“In many cases the most effective options for creating jobs are the same options that support public services,” says the introduction to Prioritizing Approaches to Economic Development in New England: Skills, Infrastructure, and Tax Incentives. “Spending and investing in areas at the core of the public sector mission—providing education and maintaining infrastructure—are effective at creating jobs in the short term and building prosperous economies over the long term . . . . The tax cuts-and-business-subsidies-approach to economic development, on the other hand, will do little to create jobs in the short run, and is not the most effective approach to generating growth over the long term.”

Paul Cillo, executive director of Public Assets Institute in Montpelier, welcomed the study as a refreshing reassessment of economic development opportunities for Vermont and the region. “For 30 years we’ve been underfunding our public infrastructure to pay for tax breaks and other so-called ‘jobs programs’ that have benefited individual business owners,” Cillo said. “As Jeff’s paper demonstrates, the result has been slower economic growth. We need to remember that government has an important role to play in economic development, and that role is to invest in and maintain the essential public structures that expand our productive capacity and help the economy to grow.

“Tax credits and other faddish incentives provide short-term benefits to a few lucky companies. But they don’t bring prosperity to Vermont’s workers, businesses, and families in the way that public investments can.”

Public Assets Institute is a non-profit, non-partisan organization that researches and analyzes state fiscal policy. It is a member of the State Fiscal Analysis Initiative (SFAI) coordinated by the Center on Budget and Policy Priorities in Washington, D.C. Jeffrey Thompson is a research economist based at the Political Economy Research Institute at the University of Massachusetts and funded, in part, by Public Assets Institute and the other New England members of the SFAI network.

Prioritizing Approaches to Economic Development in New England: Skills, Infrastructure, and Tax Incentives is available at the Public Assets Institute website.

For further information, contact:

Jeffrey Thompson at PERI 413-577-3147 or

Jack Hoffman at Public Assets Institute 802-223-6677.