Economic Development As A Public Good: A Failure and A Success
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aspiringscholar
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The American Rescue Plan Act of 2021 and the Tax Cuts and Jobs Act of 2017 serve as contrasting case studies in economic development as a public good. While ARPA's targeted relief and public investments fostered inclusive growth and societal benefits, the TCJA's regressive tax cuts primarily advantaged corporations and high-income individuals, failing to deliver broad-based economic gains. These examples underscore the necessity of evidence-based policymaking to ensure economic development advances the common good by adequately supplying essential public goods and aligning private incentives with societal benefits.
Economic Development: Public Good Synergies
fssp.com
Economic development is a key driver of increasing standards of living, as it enables productivity growth, technological progress, and the accumulation of human and physical capital. These factors lead to rising incomes and expanded economic opportunities.
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At the same time, economic development exhibits important public good characteristics. Market-supporting public goods like infrastructure, education, and stable institutions are essential for development but tend to be underprovided by private markets due to positive externalities.1
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Economic development also generates positive spillovers that benefit society as a whole, such as poverty reduction, improved health outcomes, and social cohesion.3
However, the public good nature of development means it is often undersupplied relative to the socially optimal level, as the private returns to activities like R&D or infrastructure investment fall short of the social returns.2
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This creates a role for public policy to provide development-enhancing public goods and align private incentives with the common good. Overall, realizing the potential of economic development to drive rising living standards requires recognizing its public good dimensions and crafting policies to ensure an adequate supply of the market-supporting and market-augmenting public goods that make sustained development possible.1
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5 sources
TCJA: Regressive Development Failure
iatse122.org
The Tax Cuts and Jobs Act (TCJA) of 2017 failed as an instrument of economic development for the common good, as its benefits were heavily skewed towards corporations and high-income earners, with limited gains for low- and middle-income Americans. The law slashed the corporate tax rate from 35% to 21% and transformed the taxation of foreign-source income, changes that are permanent, while individual income tax cuts are set to expire after 2025.
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According to the Tax Policy Center, the top 1% of households received an average tax cut of $50,000 in 2018, while the bottom 80% received an average cut of just $800.1
Moreover, the TCJA failed to generate the broad-based economic gains promised by its proponents. Despite claims that corporate tax cuts would spur wage growth and job creation, a study by Kennedy et al. found that the TCJA's benefits primarily accrued to high-earning employees and owners, with limited evidence of wage increases for rank-and-file workers.5
The law also substantially reduced federal revenues, with the Congressional Budget Office estimating a $1.9 trillion increase in deficits over 10 years, constraining resources available for productivity-enhancing public investments.2
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In contrast to the American Rescue Plan Act's targeted relief and support for public goods provision, the TCJA exemplifies a failure to prioritize economic development as a genuine public good. By concentrating benefits among the already affluent and adding to fiscal pressures, the law undermined the foundations for inclusive growth and shared prosperity. The TCJA's shortcomings underscore the importance of evidence-based policymaking that rigorously assesses distributional impacts and spillover effects to ensure economic development meaningfully advances the common good.1
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5 sources
ARPA: Equitable Development Success
merriam-webster.com
The American Rescue Plan Act (ARPA) represents a successful example of economic development as a public good, as it provided broad-based support that benefited a wide range of Americans, from small business owners to low-income families. ARPA's direct cash assistance, expanded unemployment benefits, and targeted aid to state and local governments helped stabilize the economy and prevent a prolonged recession in the wake of the COVID-19 pandemic.
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These measures kept millions out of poverty, reduced food insecurity, and enabled a rapid labor market recovery.3
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ARPA also included significant investments in public goods like vaccine distribution, childcare, and education, which generated positive spillovers for society as a whole.2
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By directing resources to those most in need and providing fiscal support to maintain essential public services, ARPA exemplified an approach to economic development that prioritizes the common good over narrow special interests. While the long-term impact remains to be seen, the law's success in promoting an equitable recovery and laying the foundation for inclusive growth demonstrates the potential of well-designed fiscal policy to advance economic development as a public good.4
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5 sources
Verifying Development's Positive Externalities
thomasgoetz.com
Economic development is a public good that generates positive externalities which can benefit society as a whole, such as poverty reduction, expanded economic opportunities, and improved living standards.
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However, the mere assertion that development will produce these spillover benefits is insufficient; there must be evidence-based feedback mechanisms to ensure economic development policies and investments are truly advancing the common good.
The provision of market-supporting public goods like infrastructure and education is essential for development, but tends to be undersupplied by private markets due to the divergence between private and social returns.2
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This public goods problem necessitates an active role for public policy in aligning incentives and channeling resources to development-enhancing investments. Crucially, these interventions must be subject to rigorous evaluation to verify they are delivering broad-based gains.
The contrasting examples of the Tax Cuts and Jobs Act (TCJA) and the American Rescue Plan Act (ARPA) illustrate this imperative. While proponents claimed the TCJA's tax cuts would spur growth and raise living standards, the evidence suggests the law's benefits accrued predominantly to corporations and the wealthy, with limited gains for low- and middle-income Americans.1
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Conversely, ARPA's cash assistance and public investment measurably reduced poverty, bolstered public goods provision, and promoted an inclusive recovery.3
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For economic development to meaningfully function as a public good, policymakers must prioritize evidence-based initiatives that demonstrably contribute to shared prosperity. This requires robust systems for monitoring distributional impacts, assessing spillover effects, and adapting policies based on measurable results. Only by rigorously linking development interventions to realized outcomes for the common good can societies fully harness the positive externalities of economic progress.5 sources
Related
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