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Abstract

State governments increasingly use financial incentives to target and attract firms. The li-terature on state supported development reports mixed results at best as to whether there are net economic benefits to the state economy. Little has been done, however, to investigate the benefits that politicians may receive by offering incentives. We hypothesize that state govern-ments benefit from offering financial incentives. Specifically, we use pooled cross sectional da-ta from 1981 and 1989 to develop a model to test whether a state government offering financial incentives increases state corporate tax revenue. We argue that increases in state corporate tax revenue may explain why it is in the government’s interest to target firms regardless of net economic benefit of financial incentives.

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