Bidding for Business: A Second War between the States?

Abstract

States compete for investment by offering a variety of incentives to businesses. Because these incentives play only a small role in corporate deliberations, some observers worry that public resources may be allocated inefficiently and inequitably as a result of bidding wars between the states. An empirical analysis of the effects of competition suggests these fears are exaggerated: Interstate rivalries have only a limited impact on development policy choices. Consequently, proposals to end the war between the states will not eliminate the inefficiency and inequity often attributed to development policy. More effective reforms must await a political explanation of who gets what, when, and how in state politics.