Outlawing Favoritism : The Economics, History, and Law of Anti-Aid Provisions in State Constitutions

Since the early days of the republic, state and local governments have periodically embarked on widespread, large-scale attempts to spur economic growth through targeted economic development subsidies. Interestingly, the constitutions of nearly every state in the union contain provisions that, on plain reading, make these sorts of subsidies illegal. In this paper, we review the economics, history, and law of targeted economic development subsidies in the United States, focusing on these constitutional anti-aid provisions. This review demonstrates four things. First, subsidies do not work as advertised. In fact, the best evidence suggests that they undermine economic development, fiscal health, and good governance. Second, constitutional anti-aid provisions may be able to affect the size and scope of subsidies, reducing these negative effects. Third, the details matter; not all anti-aid provisions are effective. And fourth, as special interests work to undermine the effectiveness of anti-aid provisions, such provisions must be renewed and strengthened from time to time. We conclude with suggestions for strong constitutional antiaid provisions