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The Economics of Location-Based Tax Incentives

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  • Edward L. Glaeser
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    Abstract

    Many local governments offer rich tax deals to firms to get these firms to come to their cities. In this brief essay, I review the economics of location-based tax incentives. I first address the positive economics of these incentives and present five theories of why these tax incentives occur. I then consider the normative aspects of these incentives and discuss the conditions under which these theories lead to optimal locations of firms and to optimal bundles of public goods. In general, I argue that tax incentives will generally lead to more efficient locational decisions. There may be undesirable redistributional consequences of these incentives, but these are best handled by national redistribution policy.

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    Bibliographic Info

    Paper provided by Harvard - Institute of Economic Research in its series Harvard Institute of Economic Research Working Papers with number 1932.

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    Date of creation: 2001
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    Handle: RePEc:fth:harver:1932

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    1. Glaeser, Edward L & Hedi D. Kallal & Jose A. Scheinkman & Andrei Shleifer, 1992. "Growth in Cities," Journal of Political Economy, University of Chicago Press, vol. 100(6), pages 1126-52, December.
      • Glaeser, Edward Ludwig & Kallal, Hedi D. & Scheinkman, Jose A. & Shleifer, Andrei, 1992. "Growth in Cities," Scholarly Articles 3451309, Harvard University Department of Economics.
      • Edward L. Glaeser & Hedi D. Kallal & Jose A. Scheinkman & Andrei Shleifer, 1991. "Growth in Cities," NBER Working Papers 3787, National Bureau of Economic Research, Inc.
    2. James E. Rauch, 1991. "Productivity Gains From Geographic Concentration of human Capital: Evidence From the Cities," NBER Working Papers 3905, National Bureau of Economic Research, Inc.
    3. Glaeser, Edward L. & Scheinkman, JoseA. & Shleifer, Andrei, 1995. "Economic growth in a cross-section of cities," Journal of Monetary Economics, Elsevier, vol. 36(1), pages 117-143, August.
    4. Brennan,Geoffrey & Buchanan,James M., 1980. "The Power to Tax," Cambridge Books, Cambridge University Press, number 9780521233293, April.
    5. repec:fth:stanho:e-95-4 is not listed on IDEAS
    6. 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. Enrico Moretti & Daniel Wilson, 2013. "State incentives for innovation, star scientists and jobs: evidence from biotech," Working Paper Series 2013-17, Federal Reserve Bank of San Francisco.
    2. Kline, Patrick & Moretti, Enrico, 2013. "People, Places and Public Policy: Some Simple Welfare Economics of Local Economic Development Programs," IZA Discussion Papers 7735, Institute for the Study of Labor (IZA).
    3. Kaitlyn Harger & Amanda Ross, 2014. "Do Capital Tax Incentives Attract New Businesses? Evidence across Industries from the New Markets Tax Credit," Working Papers 14-14, Department of Economics, West Virginia University.
    4. Strauss-Kahn, Vanessa & Vives, Xavier, 2009. "Why and where do headquarters move?," Regional Science and Urban Economics, Elsevier, vol. 39(2), pages 168-186, March.
    5. Moretti, Enrico, 2010. "Local Labor Markets," CEPR Discussion Papers 7818, C.E.P.R. Discussion Papers.
    6. Johannes Van Biesebroeck, 2010. "Bidding for Investment Projects: Smart Public Policy or Corporate Welfare?," Canadian Public Policy, University of Toronto Press, vol. 36(s1), pages 31-48, April.
    7. Michael Greenstone & Enrico Moretti, 2003. "Bidding for Industrial Plants: Does Winning a 'Million Dollar Plant' Increase Welfare?," NBER Working Papers 9844, National Bureau of Economic Research, Inc.
    8. Greenstone, Michael & Hornbeck, Richard A. & Moretti, Enrico, 2010. "Identifying Agglomeration Spillovers: Evidence from Winners and Losers of Large Plant Openings," Scholarly Articles 11185831, Harvard University Department of Economics.

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