The Economics Of Location-Based Tax Incentives

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 offirms 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. ,,,,,,,,,,,