Pennsylvania’s Flawed Film Tax Credit

HARRISBURG, PA — The Commonwealth Foundation today released Pennsylvania’s Flawed Film Tax Credit: What the ERA study won’t tell you, a policy brief by economists and adjunct scholars Pavel Yakovlev and Antony Davies that sheds light on the fiscal impact of the Keystone State’s tax incentive program for movie production.

The policy brief reveals several flaws in a recent study by Economic Research Associates (ERA) of Pennsylvania’s Film Tax Credit (FTC) which was commissioned by the Pennsylvania Legislative Budget and Finance Committee.  In general, the ERA study does not account for all the costs associated with the FTC program, and it falls short on some of its tax revenue claims.  Specific analysis in the Commonwealth Foundation’s brief includes:

• The ERA report claim that a significant portion of film production would be lost if not for the $75 million tax credit incentive is purely speculative given that no tax elasticity estimates are provided.  Furthermore, ERA’s admission that the majority of film productions have not applied for film tax credits suggests an inelastic response, meaning that the benefits are likely overstated.

• The $58 million in tax credits awarded to film producers is estimated to be offset by an $18 million gain in additional state and local tax revenues.  This $40 million differential means that the film tax credit did not “pay for itself” in terms of tax revenue, and other taxpayers will shoulder that tax burden offset for the film industry.

• The FTC program is unlikely to have a significant positive effect on employment and incomes in Pennsylvania.  Numerous economic studies find that tax incentives for professional sports teams and facilities create no positive net gains in income and employment.  The film industry, with its temporary or seasonal employment, is no different.  This means that the estimated net benefits are not likely to materialize once all of the opportunity costs are understood.

“Aside from the flawed assumptions cited by Drs. Yakolev and Davies, what is most troubling about this taxpayer-funded report is that it was conducted by an entity with a clear conflict of interest,” said Matthew Brouillette, president and CEO of the Commonwealth Foundation. 

“This report was not produced by economists or independent analysts, but a Hollywood-based consulting firm with many movie studios as clients,” said Brouillette.  “Did they LBFC really think they’d get an unbiased report from ’researchers’ who financially benefit from the continuance of the film tax credit program?”

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EDITOR’S NOTE: The policy brief, Pennsylvania’s Flawed Film Tax Credit: What the ERA study won’t tell you, by Drs. Yakovlev and Davies (professors in the Department of Economics and Quantitative Sciences, A.J. Palumbo School of Business at Duquesne University) is available online and by calling 717.671.1901.

The Commonwealth Foundation (www.CommonwealthFoundation.org) is an independent, non-profit public policy research and educational institute based in Harrisburg, PA.