Using a unique data set from a survey of California city managers in 2002 and replicated in 2006, this study addresses several gaps in the existing literature: failure to simultaneously examine numerous possible factors that could explain why cities use economic development incentives, a focus on cities above a certain population size, and not examining the use of incentives over time.

By contrast, this study tests a variety of hypotheses supported by three theories dominant in the literature—economic, political, and competitive—and tests them on cities of all population sizes over two time periods.

Most California cities use incentives. However, the incentives used most frequently are not those rated by cities as providing the greatest results or return on the community's investment. Instead, the incentives cities use most often are those that are the easiest to use. This suggests an inefficient use of public funds.

Using a zero-inflated negative binomial model, the study finds that many theories used in previous research do not hold when examined together. Economic factors are important predictors in both years' results, most importantly a city's level of affluence and its population size. Increasing household income meant a decline in incentives used in 2002 and increased the likelihood in 2006 that zero incentives would be used. In both years, population is a key predictor: the various theories tested do not hold when applied to cities of all sizes, specifically Small cities. Not only do cities with less than 25,000 people use fewer incentives, this study uncovers a new reality: Small cities are inclined to offer no incentives at all. This calls into question previous research that focuses solely on explaining why cities offer incentives, rather than why they do not.

With the exception of a city's geographic location, no competitive or political factors are significant predictors of incentive use.

This study also finds there is some change in the use of incentives over time, suggesting that previous research has a limited shelf life.