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State Economic Development Incentives Under Interstate Retaliation

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  • Kraybill, David S.
  • Pai, Dee-Yu

Abstract

Many American states use firm-specific tax abatements in an attempt to attract and retain businesses. Since approximately 1990, the "war among the states" for economic development has intensified. This paper analyzes Ohio's job tax credit program using a state-level computable general equilibrium (CGE) model that accounts for economic and fiscal flows within the Ohio economy. The model also links Ohio and the rest-of-the-United States through labor market and goods market flows. We estimate that net job creation due to the Ohio program is nine percent of the number of promised new jobs if other states do not retaliate with similar tax abatement programs. If other states retaliate, we estimate that Ohio's net employment will expand by less than one percent of the promised new jobs and the state government deficit increases by $100 million annually.

Suggested Citation

  • Kraybill, David S. & Pai, Dee-Yu, 1996. "State Economic Development Incentives Under Interstate Retaliation," Economics and Sociology Occasional Papers - ESO Series 243227, Ohio State University, Department of Agricultural, Environmental and Development Economics.
    • Handle: RePEc:ags:ohsesp:243227
    DOI: 10.22004/ag.econ.243227
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    References listed on IDEAS

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    1. Arnold C. Harberger, 1962. "The Incidence of the Corporation Income Tax," Journal of Political Economy, University of Chicago Press, vol. 70(3), pages 215-215.
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    3. Mark D. Partridge & Dan S. Rickman, 1996. "The Role Of Industry Structure, Costs, And Economic Spillovers In Determining State Employment Growth Rates," The Review of Regional Studies, Southern Regional Science Association, vol. 26(3), pages 235-264, Winter.
    4. Crihfield, John B. & Panggabean, Martin P. H., 1995. "Is public infrastructure productive? A metropolitan perspective using new capital stock estimates," Regional Science and Urban Economics, Elsevier, vol. 25(5), pages 607-630, October.
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