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The Economics of Location-Based Tax Incentives

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  • Edward L. Glaeser

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.

Suggested Citation

  • Edward L. Glaeser, 2001. "The Economics of Location-Based Tax Incentives," Harvard Institute of Economic Research Working Papers 1932, Harvard - Institute of Economic Research.
    • Handle: RePEc:fth:harver:1932
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    File URL: http://www.economics.harvard.edu/pub/hier/2001/HIER1932.pdf
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    References listed on IDEAS

    as
    1. 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.
    2. Brennan,Geoffrey & Buchanan,James M., 2006. "The Power to Tax," Cambridge Books, Cambridge University Press, number 9780521027922, Enero-Abr.
    3. 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 1126-1152, December.
      • 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.
      • Glaeser, Edward Ludwig & Kallal, Hedi D. & Scheinkman, Jose A. & Shleifer, Andrei, 1992. "Growth in Cities," Scholarly Articles 3451309, Harvard University Department of Economics.
    4. Rauch James E., 1993. "Productivity Gains from Geographic Concentration of Human Capital: Evidence from the Cities," Journal of Urban Economics, Elsevier, vol. 34(3), pages 380-400, November.
    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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