Is competition to attract businesses harmful?: State and local governments often use incentives such as tax cuts, rebates, promises of government services and the easing of regulatory restrictions to induce new or existing businesses to locate in their region.
But this strategy raises some important questions:
- Do these policies work
- Do the costs exceed the benefits?
- Do the policies simply redistribute economic activity from one region to another, what economists call a "zero-sum game," or do they create a positive aggregate effect from easing tax burdens and other restrictions?
- Finally, if it is a zero-sum game, would the U.S. benefit from banning this sort of competition for businesses at the state and local level because it lowers the tax revenue needed to fund critical services and erodes regulatory protections?
These questions are addressed... First...