Movies are big business. In the United States alone, studios pulled in a whopping $8.72 billion in box office revenue last year. Despite these healthy returns, movie companies receive hefty subsidies from state governments countrywide. The reason these subsidies were created and continue to exist provides a powerful lesson in how governments function and the inescapable dilemmas faced by all policymakers.
History and Mechanics of Film Subsidies
According to the New York Times, a total of 38 states offered film subsidies in 2024, five of whom started doing so after 2022. While fewer than the 44 states that offered such programs in 2009, it still means that about 75 percent of states offer such subsidies. And this widespread adoption comes within a mere 32 years of Louisiana launching the first such program.
The size and style of these subsidies differs from state to state, and take the form of everything from exempted sales taxes to large refunds. The most generous, and thus most used, subsidies are transferable and refundable credits. Transferable credits can be sold to other companies, allowing studios to cash them in for a quick buck. Refundable credits mean companies are given back a fixed percentage of what they spent as a lump sum, instead of claiming them on their taxes.
At the moment, New York State and Georgia provide some of the most generous film subsidies, having each given out billions since first launching their credits. The impact has been noticeable, with Georgia gaining a burgeoning film industry while New York has managed to mostly retain its industry despite rising competition.
States create these subsidies in hopes of developing their own film industries and becoming a go-to site for Hollywood filmings, which they think will provide new jobs and valuable tax revenue. Filmmakers have taken heavy advantage of them, with major film sites offering advice about how best to exploit existing subsidies, “film production incentives — grants, rebates, and film tax credits…even bonuses.” But a closer look shows these subsidies fail to deliver the promised effects.
Consequences of Film Subsidies
For starters, these subsidies actively lose money. Even with the additional economic activity they generate, states generally recoup just cents on the dollar. In response to the revenue loss, states either cut spending on other areas, raise taxes directly, or raise taxes indirectly by issuing debt that must later be paid off. Each of these ways of accounting for lost revenue generates costs to the taxpayers. What’s more, states are in a race to the bottom, issuing ever-more-generous subsidies in an effort to beat other states, with little regard to if they can afford them.
The economic benefits of these films are also overrated. While some jobs associated with filmmaking are quite lucrative, the individuals who can fill those jobs usually live near existing film industries. These talented individuals, not locals, take the high-paying jobs, with the locals instead taking lower-paying jobs in areas like hairdressing, catering, and transporting equipment.
Though film studios have funded a number of reports claiming subsidies generate net benefits, these reports all share a common weakness: an ignorance of opportunity cost. Frédéric Bastiat, in his essay on public financing of the arts, rightly emphasized that the jobs created by art funding don’t appear out of thin air. Rather, they come at the cost of other jobs that would have existed, if they hadn’t been taxed out of existence to subsidize the arts.
In short, subsidies don’t just cost states money, many of the proposed benefits are the result of redirecting money from taxpayers to studios. Why do these subsidies still exist? Public choice theory provides a compelling set of explanations.
Public Choice Insights
Public choice theory, famously dubbed “politics without romance” by James Buchanan, applies the analytical tools of economics to politics and policy. The insights they’ve provided by doing so help explain the proliferation of movie subsidies.
First, voters are usually rationally ignorant, as they understand that their singular vote doesn’t significantly matter. Even though some may still devote time and energy to studying the issues, motivated by a sense of civic duty or obligation, many will vote with little to no research or scrutiny. As a result, many may trust the elected officials behind such subsidies to know what’s best, instead of interrogating their choices. This contributes to a lack of accountability, meaning politicians can support these subsidies without being punished.
In fact, supporting these subsidies can actually help politicians be re-elected. Though many politicians are well-meaning individuals with noble goals, many are also primarily concerned with being reelected. Some see reelection as key to being able to do more good in the future, while others see their positions as lucrative personal opportunities. By supporting film subsidies, politicians can secure money and votes from those the subsidies benefit. And if they refuse to engage in the bidding wars that drive up subsidies, they may lose voter support and be accused of not being willing to secure more jobs.
Finally, any attempt to organize against these subsidies faces an uphill battle. Film subsidies are a perfect example of the concentrated benefits and dispersed costs that solidify special interest groups. These special groups have strong incentives to fight tooth and nail against all efforts to repeal their subsidies, while the general public will be less incentivized to organize against the subsidies. As a result, despite public outcry from the New York Times, various think tanks, national magazines, and others, policy change will almost certainly take years.
Conclusions
The case of film subsidies shows us that policies that benefit specific groups at the cost of our wider society can and are often implemented. And once in place, they’re difficult to remove. Indeed, there are countless examples, from the Jones Act to sugar tariffs. Understanding this reveals that the theory of an always good government does not line up with reality.
The existence of these policies also provides a powerful reminder to those working in policy that the continued existence of a policy is not always an endorsement of its benefit to society. Indeed, sometimes it is the opposite.
