It's worth noting that there's also a strong counter-incentive to avoiding urban sprawl. Given that cities are expanding, something new will need to be built. That's pretty much inevitable.

What's striking is how hard it is to take what's already present and build up, to modernize or expand existing infrastructure. Construction in a city is expensive, and a great many existing buildings break various codes (ADA, asbestos, etc) in ways that are more expensive to fix than from-scratch development is.

When building new is cheaper than retrofitting, people will tend to do it. Putting up a new building in Boston's financial district would likely mean knocking half a dozen valuable apartment buildings, and won't ever happen. Putting that office building up five miles away is cheaper, and Boston is already seeing a number of industrial parks on its outskirts for that reason.

The exceptions are places where land costs a fortune (NYC), zoning is impossible to deal with (San Francisco), or the sprawl is already so atrocious that "outskirts" is a death sentence for a new venture (LA).

Subsidies for expansion certainly matter, but even without them there are substantial incentives to choose sprawl over infill and development.