Marginal Utility

by Ken Houghton

from the NYT via The Sainted Constance at Deep Genre, solving a mystery posed a few days ago by John Crowley:

The upscale Urban Baby store became a pawnshop offering 30-day loans.

And this is truly an Economics post:

The filmmakers chose New Haven to take advantage of generous tax credits Connecticut began doling out to production companies last year as well as Yale’s historic campus....Film activities have skyrocketed since Connecticut began its tax credit program, which gives qualifying productions back 30 percent of costs. The state reported $52 million worth of film production in the first six months of the program, last July to December, compared with $750,000 during the six months before that, according to The Associated Press. With more costs becoming eligible today, some expect the total to top $300 million this year.

Zero-sum calculations table:

1. To the extent that films are made that would not otherwise have been, this is an expansion of the pie. However, any film that becomes makeable solely because of a tax break (in the context of an overall budget) is unlikely to be justifiable on strictly economic grounds.
   
2. To the extent that films would have used a CT setting anyway, there is a loss of tax dollars. Given the data, this appears to be a nominal amount (just under 1.5%).
   
3. The films still have to pay for location use, and, to some extent, may use local talent as extras, transportation (taxi drivers), and other tasks, at least some of whom will pay taxes and/or spend the money locally.
   
4. To the extent that the films would have been made anyway, the films are selecting CT over MA or NYC or Chicago or some other location. So there has been a shift of just over $50 million between economies, but no net gain to U.S. GDP, except to the extent that either
   
   1. the work would have been done in Canada, Europe, or some other location or
      
   2. people in CT spend more of their income than others, so that the multiplier effect might produce a second- or third-order effect.

As the Urban Babys of today become the pawn shops of yesteryear become the pawn shops of tomorrow, taxes and transfers remain something that can be made to appear optimal.

Labels: Economics, just life, Tax Incentives