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State Targeting of Business Investment: Does Targeting Increase Corporate Tax Revenue?

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  • Calcagno, Peter T.
  • Hefner, Frank L.

Abstract

State governments increasingly use financial incentives to target and attract firms. The li-terature on state supported development reports mixed results at best as to whether there are net economic benefits to the state economy. Little has been done, however, to investigate the benefits that politicians may receive by offering incentives. We hypothesize that state govern-ments benefit from offering financial incentives. Specifically, we use pooled cross sectional da-ta from 1981 and 1989 to develop a model to test whether a state government offering financial incentives increases state corporate tax revenue. We argue that increases in state corporate tax revenue may explain why it is in the government’s interest to target firms regardless of net economic benefit of financial incentives.

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Bibliographic Info

Article provided by Mid-Continent Regional Science Association in its journal Journal of Regional Analysis and Policy.

Volume (Year): 37 (2007)
Issue (Month): 2 ()
Pages:

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Handle: RePEc:ags:jrapmc:132409

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Keywords: Financial Economics;

References

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  1. Timothy J. Bartik, 2000. "Jobs, Productivity, and Local Economic Development: What Implications Does Economic Research Have for the Role of Government?," Book chapters authored by Upjohn Institute researchers, in: Robert W. Wassmer (ed.), Readings in Urban Economics: Issues and Public Policy, pages 72-122 W.E. Upjohn Institute for Employment Research.
  2. de Bartolome, Charles A. M. & Spiegel, Mark M., 1997. "Does State Economic Development Spending Increase Manufacturing Employment?," Journal of Urban Economics, Elsevier, vol. 41(2), pages 153-175, March.
  3. Martin Saiz, 2001. "Using Program Attributes to Measure and Evaluate State Economic Development Strategies," Economic Development Quarterly, , vol. 15(1), pages 45-57, February.
  4. Carroll, Robert & Wasylenko, Michael J., 1994. "Do State Business Climates Still Matter? -- Evidence of a Structural Change," National Tax Journal, National Tax Association, vol. 47(1), pages 19-37, March.
  5. Gabe, Todd M. & Kraybill, David S., 1998. "Tax Incentive Requests and Offers in a State Economic Development Program," The Review of Regional Studies, Southern Regional Science Association, vol. 28(3), pages 1-14, Winter.
  6. Margaret E. Dewar, 1998. "Why State and Local Economic Development Programs Cause so Little Economic Development," Economic Development Quarterly, , vol. 12(1), pages 68-87, February.
  7. Buchanan, James M & Lee, Dwight R, 1982. "Politics, Time, and the Laffer Curve," Journal of Political Economy, University of Chicago Press, vol. 90(4), pages 816-19, August.
  8. Ellis, Stephen & Rogers, Cynthia, 2000. "Local Economic Development as a Prisoners' Dilemma: The Role of Business Climate," The Review of Regional Studies, Southern Regional Science Association, vol. 30(3), pages 315-330, Winter.
  9. Jim F. Couch & J. Douglas Barrett, 2004. "Alabama’s Enterprise Zones: Designed to Aid the Needy?," Public Finance Review, , vol. 32(1), pages 65-81, January.
  10. Peter T. Calcagno & Henry Thompson, 2004. "State Economic Incentives: Stimulus or Reallocation?," Public Finance Review, , vol. 32(6), pages 651-665, November.
  11. Newman, Robert J, 1983. "Industry Migration and Growth in the South," The Review of Economics and Statistics, MIT Press, vol. 65(1), pages 76-86, February.
  12. Peter K. Eisinger, 1993. "State Venture Capitalism, State Politics, and the World of High-Risk Investment," Economic Development Quarterly, , vol. 7(2), pages 131-139, May.
  13. Timothy J. Bartik, 1991. "Who Benefits from State and Local Economic Development Policies?," Books from Upjohn Press, W.E. Upjohn Institute for Employment Research, number wbsle.
  14. Helms, L Jay, 1985. "The Effect of State and Local Taxes on Economic Growth: A Time Series-Cross Section Approach," The Review of Economics and Statistics, MIT Press, vol. 67(4), pages 574-82, November.
  15. Joe Mattey & Mark Spiegel, 1995. "Is state and local competition for firms harmful?," FRBSF Economic Letter, Federal Reserve Bank of San Francisco, issue aug4.
  16. Bartik, Timothy J, 1985. "Business Location Decisions in the United States: Estimates of the Effects of Unionization, Taxes, and Other Characteristics of States," Journal of Business & Economic Statistics, American Statistical Association, vol. 3(1), pages 14-22, January.
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