I’ve been working away on a book manuscript on investment incentives.  For the loyal reader(s) of this blog, I’m sure you’re tired of this topic.  But a friend of mine just emailed me some info about buying “unused” tax credits.

One interesting issue that we haven’t addressed in our research is the use of different types of incentive programs to attract firms.  Some countries, states and cities provide direct grants or loans to firms.  More common in the U.S. is providing tax exemptions or credits to firms.  The rhetoric behind these programs is that governments provide incentives to firms, but these firms only realize these incentives if they become profitable.

A lawyer friend of mine just emailed me that they have seen a bunch of tradable tax credits cross their desk.  Many U.S. incentive programs allow for the selling of tax credits.   My friend said that in Missouri they often trade for as much as $0.93 cents on the dollar.

To put this in broader perspective, here is an article about tradable film tax credits.

Unfortunately, numerous articles have noted that this isn’t a transparent market.  A few sites have tried to build tax credit exchanges but there seems to be very little trade volume on these sites.

I don’t have any punchy conclusion.  My gut is that these large incentives are almost as valuable to firms as cash (93 cents on the dollar) yet politicians aren’t criticized for handing out cash to firms.

If you have any data on this or general thoughts, drop me an email.