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My sense is in Massachusetts(the only state I am really familiar with in terms of state film tax incentives)they "may" have "some" benefit in the sense they raise the profile of the city of Boston nationally and internationally. (For whatever its worth they have an exhibit at Logan Airport showing the movie posters of all the films made in Massachusetts. There are rather interesting ones like the Witches of Eastwick starring Jack Nicholson). So if you feel some of Boston's "problem" is it is not as well known as New York or Los Angeles then perhaps it is money well spent. On the other hand there are a "lot" of other places where the Commonwealth could probably better spend the money. What is notable I find is that current Massachusetts Governor Deval Patrick appears to have embarked on a rather "low tech" industrial strategy despite Massachusetts being a rather high tech high education state of focusing on industries such filmmaking, casino gambling, food and beverage etc. Again, there is nothing "wrong" with this and in some areas such as transportation infrastructure improvements have been needed for years however, it is out of context of much of national American "Progressive" movement and previous MA governors Republican and Democrat.
Then what is the "right" answer? I don't argue for a national incentive because I think it's ideal, it's just the most pragmatic option available. Efforts were made to file a trade action to challenge the legality of Canada's incentives under trade agreements. The USTR rejected the petition. The state incentives are much too large and unsustainable. A national incentive could be a mere fraction of what the states are offering. A 15% credit in the US would overcome a 40% credit in Canada. California's incentive, which has an effective rate of about 14%, is enough to neutralize 30% offered in Georgia. Point is, producers will take a very small incentive if it means they can shoot where the talent is.
the right answer is no incentives at all, because beggar thy neighbor is a low road and losing strategy long term. However I recognize that short term it's a low road but winning strategy, like most tax expenditures, but the question is whether it is a winning strategy economically or socially as opposed to merely politically.
I agree with you that tax incentives are not ideal policy. I also think guns are terrible weapons. But if someone is using them against me, I would want one for defense. Similarly, if other nations are using targeted film incentives to hallow-out one of last major American industries, I think we need to prevent that. It would be nice if Canada subscribed to the economic philosophy that detests picking winners and losers, but they don't.