How Film Production Incentives Work—and Why Economists Can't Agree on Whether They Pay Off

Film and television production incentives are one of the most widely used economic development tools in the United States, and one of the most contested. The industry says they create jobs and pump money into local businesses; independent economists repeatedly find little or no net gain, and in some states a substantial net loss. If you want to judge the policy for yourself, you need two things: a grasp of how the incentives are designed to work, and a clear view of what the competing studies actually measured. That gap—between the theoretical model and the observed results—is the whole story.

Understanding Film Production Incentives

Most American states now offer some form of incentive to attract film and television productions, a practice that has intensified as jurisdictions compete for what economists call "footloose" filming—projects that can shoot almost anywhere. Utah, for example, established its Motion Picture Incentive Program in 2011, according to the Utah Film Commission, explicitly "to attract more film productions to our state and remain competitive in today's industry." The logic is straightforward: production is mobile, spending is large, and a subsidy can tip the location decision.

The economic case for these programs rests on a three-tier model of impact. The first tier is the production's own spending—wages to cast and crew, rentals, catering, lodging. The second tier is the indirect effect: the money that spending pushes outward to local vendors, suppliers, and service providers who sell to the production. The third tier is the induced effect, the additional economic activity generated when the people paid by the production—crew, vendors, and their employees—spend those wages locally, rippling further through the economy. Proponents' impact estimates typically sum all three tiers, applying multipliers to convert one dollar of production spending into several dollars of claimed statewide activity.

That multiplier arithmetic is where the debate begins, because it is also where the assumptions live. How much of the spending actually stays in the state? How much of the activity would have happened anyway? Those questions determine whether a program is an investment or a transfer.

The Proponents' Case: Economic Benefits Claimed by Industry

The Motion Picture Association, the industry's main advocacy organization, frames production incentives as a proven engine of local prosperity. The film and television industry, it says, supports over 2 million jobs, pays out more than $200 billion in total wages, and comprises over 162,000 businesses, with production activity taking place in all 50 states, the District of Columbia, and Puerto Rico each year. Incentives, in this telling, bring high-paying jobs, support local businesses, and provide an immediate boost to the local economy.

State film offices make the same case with state-specific figures. The Utah Film Commission reports that over the last ten years the state's film incentive program generated more than $736 million in economic impact from productions spending an average of $270,000 per day in the state economy. The commission also credits production with creating creative-sector jobs, supporting local businesses, and encouraging tourism. These are the kinds of numbers that make incentives politically attractive: large, concrete, and attached to visible projects.

Notice, though, what these figures measure. They describe gross activity—jobs supported, wages paid, money spent—rather than net gains to the state after subtracting the cost of the incentive itself. That distinction is where the industry's numbers and the economists' numbers part ways.

A Critical View: Findings from Economic Studies

Independent economic analyses have repeatedly tested whether incentives produce the lasting gains they promise, and the results are sobering. Patrick Button, an economist at Tulane University, examined what happens after states adopt incentives in a working paper distributed by the National Bureau of Economic Research. He found that TV series filming increases by 6.3 to 55.4 percent after incentive adoption—at most 1.5 additional TV series—but that there is "no meaningful effect on feature films, and employment, wages, and establishments in the film industry and in related industries." His conclusion: even with aggressive incentives aimed at footloose filming, incentives can have little impact on business location and economic development.

A study of Louisiana and New Mexico, two states that went all-in on incentives, reached a similar verdict. While those states captured some feature films, the increase in filming "did not lead to more tangible economic impacts that would indicate the development of a local film industry: employment and business establishments in the industry," the authors write. Their result suggests that the ability of policymakers to create a local film industry using incentives is limited.

Michigan's experience, as documented by the Mackinac Center for Public Policy, illustrates the fiscal downside. A 2010 report showed the state's film incentive program drained a net $28 million from Michigan's budget in 2009, $101 million in 2010, and an estimated $126 million in 2011—even after accounting for spin-off economic activity. A 2014 analysis commissioned by the Michigan Film Office itself put the program's return on investment at negative 62 percent. The Mackinac Center's assessment is blunt: the program "did not have a durable impact on the state's labor market."

Comparing Claims: Film Incentives' Economic Impact

The table below places the industry's claims and the critical findings side by side on the same metrics, so you can see exactly where the evidence diverges. Use it as a policy assessment tool: for any incentive proposal, ask which column its supporting study belongs in, and why.

The pattern across the table is consistent: proponent figures describe gross activity, while the critical studies measure net change against a counterfactual. Neither side is necessarily lying; they are answering different questions.

The Core Debate: Conflicting Evidence on Economic Impact

Why do the two camps reach such different conclusions? The divergence is largely methodological, and understanding it is essential to reading any new impact study. Industry-supported studies typically count total jobs supported, total wages, and total local spending, and they apply multipliers to capture indirect and induced effects. That approach answers: how much economic activity is associated with productions that received incentives?

The critical studies ask a harder question: what changed because of the incentive? Button's design compares states before and after incentive adoption, which is why he can report that TV series filming rose modestly while employment, wages, and establishments did not. The Michigan analyses subtracted the cost of the credits and the spin-off activity from the claimed benefits, which is how a program can generate hundreds of millions in visible spending and still return negative 62 cents on the dollar. Leakage—spending that flows to out-of-state companies—and deadweight loss—activity that would have happened anyway—are the two factors most likely to be absent from advocacy figures and decisive in independent ones.

There is also a measurement problem that complicates any verdict. California's Legislative Analyst's Office, reviewing state film tax credits, notes that available data often exclude certain production companies whose primary business is classified in another industry, or that contract with payroll services companies serving as employer of record. Freelance actors, screenwriters, and directors are typically reported under a different industry group that also includes independent artists and writers in other fields. In other words, even the raw employment data underlying these debates is imperfect, and honest analysts on both sides acknowledge it.

Informed Decision-Making on Film Incentives

None of this settles whether incentives are good or bad policy—that verdict depends on what a state values, from headline jobs to cultural cachet to fiscal discipline, and the evidence here does not support a universal judgment. What the evidence does support is a discipline for evaluation. Policymakers and industry professionals should critically evaluate economic impact claims by considering both industry-supported data and independent economic analyses, paying close attention to methodological differences. Before accepting any figure, ask three questions: Does it measure gross activity or net change? Does it subtract the cost of the credit? And does it account for leakage and deadweight loss?

The observable signal to watch is the publication of new economic impact studies, particularly those that transparently detail their methodologies and assumptions regarding multiplier effects, deadweight loss, and leakage. When the next study lands—whether from a film office, a legislature, or an academic economist—those three disclosures will tell you which side of the table it belongs on, and how much weight it deserves.

Sources

• How Film Production Impacts Utah's Economy - Utah Film Commission
• Driving Local Economies — Motion Picture Association
• NBER
• Can Tax Incentives Create a Local Film Industry? Evidence from Louisiana and New Mexico - PMC
• The False Promise of Film Incentives — Mackinac Center
• Overview of Motion Picture Industry and State Tax Credits — LAO