by Jon Sanders
Research Editor and Senior Fellow, Regulatory Studies, John Locke Foundation
Since 2005, North Carolina has provided over $404 million in subsidies (tax credits and grant payments) to film production companies. The thinking is that incentivizing film productions grows an industry, lifts the state’s profile, helps our tourism, boosts related industries, and grows the state’s economy.
But does it? Lots of research into state film incentives have questioned those assumptions. Now a new study from Western Carolina University’s Center for the Study of Free Enterprise asks “What Do Film Incentives Mean for North Carolina’s Economy?”
The study was produced by John Charles Bradbury, a professor of economics at Kennesaw State University and a faculty affiliate with the Bagwell Center for the Study of Markets and Economic Opportunity.
Bradbury looks at the academic literature on state film incentives and their various economic impacts. For example, a state’s return on investment through taxes. If it is positive, it would mean “each dollar spent on film subsidies generated more than a dollar for state government.” That would indicate the incentive was having a stimulating effect on the state’s economy (but it would still be unknown how well the economy would do without the wealth transfer). Nevertheless, as Bradbury showed, research was consistently in finding negative returns (most far less than a dollar) in film subsidies.
Likewise, studies looking into movie location, industry agglomeration, and employment effects of state film incentives also failed to find strong evidence of the subsidies developing a lasting film industry or strong effects on film employment.
As for whether state film incentives stimulated economic activity in the states, Bradbury found that “Overall, film incentives were not associated with the size and growth of state economies.”
As Bradbury wrote:
In summary, researchers do not find film incentives to be strongly correlated with film-industry activity, size, stability, or employment in states. Furthermore, film incentives do not appear to boost state economies.
The findings are consistent across many studies using a variety of empirical methods, which indicates a strong academic consensus that film incentives are impotent as an economic-development tool.
What about North Carolina? Could North Carolina’s experience with subsidies for film productions be different? Unfortunately for taxpayers and incentives advocates, the answer is no.
Bradbury found that while incentives may “motivate some filming in North Carolina,” there are many reasons why film productions choose North Carolina. That is important because the only way to credit an incentive as working is if it brings a production into the state that would not be here otherwise. Advocates prefer to assume that all subsidized activity exists because of the subsidies, but that’s not the case. As Bradbury shows, this finding means that “subsidies went to production companies without generating many jobs.”
Studies of North Carolina’s film incentives were consistent with other analyses of film incentives programs, Bradbury found. Those studies failed to demonstrate “strong positive returns claimed by [incentives’] proponents.” They found strong negative returns on investment.
A “rigorous assessment” by the N.C. General Assembly’s Fiscal Research Division in 2013 estimated the return on investment for North Carolina’s program at 23 cents per dollar. Fiscal Research also provided analysis correcting errors in a 2014 motion picture industry study, and this analysis estimated it at 61 cents per dollar (but as pointed out here, Fiscal Research acknowledged a key limitation in their review in that they did not account for opportunity costs, meaning their estimate was still too high). Finally, a 2017 study by economists Mark F. Owens of Penn State University and Adam D. Rennhoff of Middle Tennessee State University estimated the return on investment for North Carolina’s program at 22 cents per dollar.
Bradbury set up a counterfactual analysis to analyze “how the state economy might have performed absent its film incentive.” While this analysis conformed with the state’s economy in the years prior to the state’s adoption of film subsidies, it diverged afterward, with North Carolina’s actual economic performance falling below the no-film-incentives projection.
What does that mean? Bradbury explained, “The comparison suggests that North Carolina’s economy was not improved by its film incentives and that it might be worse off.”
In conclusion, he wrote:
North Carolina’s film incentives, which have cost the state over $400 million, do not appear to have delivered the promised economic boost. For this reason, policy makers may wish to reconsider the state’s commitment to the incentives.
Other research has made the case that film incentives create an extortive political economy, that they only benefit outside film production companies, and that, even if they are intended to boost the state’s film industry without respect to the overall economy, they should be tightly limited. Recent news offers cautionary examples to policymakers that film subsidies’ recipients may try to use them to extort social policy choices that align with their own political preferences.
As we recommended in our Policy Position on film grants, the best approach is to “End the film production grant program” and “Let the state’s significant, across-the-board pro-growth reforms attract outside film productions, as they do for long-term business enterprises.”