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Analyzing a proposal to ban state tax breaks to businesses

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  • Thomas J. Holmes

Abstract

This article asks whether or not the overall welfare of U.S. residents would be greater if U.S. federal law prohibited state governments from offering tax breaks to particular businesses. The answer of a formal model is yes, making such tax breaks illegal could increase a summary measure of total welfare in the economy. According to the model, the policy could increase welfare because it would increase the tax revenue collected from capital agents, and that revenue could finance an increase in spending on public goods. The policy would also spread the tax burden more evenly in the economy and so reduce the deadweight loss of taxation per dollar collected. In addition, the policy would lead to a more efficient pattern of industry locations in the economy.

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Bibliographic Info

Article provided by Federal Reserve Bank of Minneapolis in its journal Quarterly Review.

Volume (Year): (1995)
Issue (Month): Spr ()
Pages: 29-39

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Handle: RePEc:fip:fedmqr:y:1995:i:spr:p:29-39:n:v.19no.2

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Related research

Keywords: State finance ; Taxation;

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References

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  1. Holmes, Thomas J, 1989. "The Effects of Third-Degree Price Discrimination in Oligopoly," American Economic Review, American Economic Association, vol. 79(1), pages 244-50, March.
  2. Wildasin, David E., 1991. "Some rudimetary 'duopolity' theory," Regional Science and Urban Economics, Elsevier, vol. 21(3), pages 393-421, November.
  3. Maria Paz Espinosa, 1992. "Delivered Pricing, FOB Pricing, and Collusion in Spatial Markets," RAND Journal of Economics, The RAND Corporation, vol. 23(1), pages 64-85, Spring.
  4. Kehoe, Patrick J, 1989. "Policy Cooperation among Benevolent Governments May Be Undesirable," Review of Economic Studies, Wiley Blackwell, vol. 56(2), pages 289-96, April.
  5. Wilson, John D., 1986. "A theory of interregional tax competition," Journal of Urban Economics, Elsevier, vol. 19(3), pages 296-315, May.
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Cited by:
  1. Tan, Justin & Li, Shaomin & Xia, Jun, 2007. "When iron fist, visible hand, and invisible hand meet: Firm-level effects of varying institutional environments in China," Journal of Business Research, Elsevier, vol. 60(7), pages 786-794, July.

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