Negative Economic Impact

Targeted subsidies harm overall economic development through several mechanisms identified in the Mercatus research:

Opportunity costs

Funds spent on subsidies could provide broad-based tax relief or public services benefiting all businesses. The studies show that investments in education, infrastructure, and public safety often have a much higher return on investment than targeted subsidies[8].

Market distortions

Subsidies create market distortions by protecting certain companies from competition, fostering inefficiencies. The Mercatus research indicates that subsidized companies often become less innovative and less responsive to market forces, ultimately hampering their long-term competitiveness[9].

Misallocation of resources

Subsidies encourage companies to make decisions based on the availability of incentives rather than on where they would be most productive. This can lead to inefficient use of land, labor, and capital, reducing overall economic productivity[10].

For Idaho, these negative impacts are particularly pronounced given the state's heavy reliance on targeted incentives. The funds currently allocated to subsidies could provide far greater economic benefit if redirected towards broad-based tax relief or investments in public infrastructure and education. Moreover, by shielding certain companies from market forces, Idaho's subsidy programs are actively weakening the competitiveness of its business sector.