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Strategic interaction and economic development incentives policy: Evidence from U.S. States

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  • Wang, Jia

Abstract

This paper examines Economic Development Incentives (EDI) use by states. In particular, it examines if states engage in strategic interaction when making decisions about the total value of EDI offered in a given year. The goal is to better understand if competition among states for jobs and private investment is a contributing factor to the increase in EDI spending programs. Taking advantage of a national search engine, spatial econometric techniques are applied to state-level panel data and different metrics of neighborliness are considered to better identify patterns of EDI competition. Results from 48 states during the period 2007 to 2012 suggest the presence of strategic interaction: states increase their EDI spending when their neighbors do so. Estimates are robust to numerous specification checks, including an alternative source of EDI spending data. Notably, states compete more intensively over out-of-pocket incentives than those in the form of forgone revenue.

Suggested Citation

  • Wang, Jia, 2018. "Strategic interaction and economic development incentives policy: Evidence from U.S. States," Regional Science and Urban Economics, Elsevier, vol. 68(C), pages 249-259.
    • Handle: RePEc:eee:regeco:v:68:y:2018:i:c:p:249-259
    DOI: 10.1016/j.regsciurbeco.2017.11.007
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    Cited by:

    1. Jia Wang & Weici Yuan & Cynthia Rogers, 2020. "Economic Development Incentives: What Can We Learn From Policy Regime Changes?," Economic Development Quarterly, , vol. 34(2), pages 116-125, May.
    2. Mimboe, Bernard, 2021. "Strategic interactions in the provision of public infrastructures: Evidence from Economic and Monetary Community of Central Africa (EMCCA) countries," MPRA Paper 106563, University Library of Munich, Germany.
    3. Wang, Jian & Wu, Qun & Yan, Siqi & Guo, Guancheng & Peng, Shangui, 2020. "China’s local governments breaking the land use planning quota: A strategic interaction perspective," Land Use Policy, Elsevier, vol. 92(C).
    4. Huang, Ying, 2022. "Government subsidies and corporate disclosure," Journal of Accounting and Economics, Elsevier, vol. 74(1).
    5. Shaoming Cheng & Hai (David) Guo & Cathy Yang Liu, 2020. "Incentivized for Leveling the Playing Field: Do State Economic Incentives Compensate for High Taxes?," Economic Development Quarterly, , vol. 34(2), pages 101-115, May.

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    More about this item

    Keywords

    H2; H71; H77; Economic development incentives; Strategic interaction; State and local governments;
    All these keywords.

    JEL classification:

    • H2 - Public Economics - - Taxation, Subsidies, and Revenue
    • H71 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Taxation, Subsidies, and Revenue
    • H77 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Intergovernmental Relations; Federalism

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