State Economic Development Incentives Under Interstate Retaliation

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.

Issue Date:
May 09 1996
Publication Type:
Working or Discussion Paper
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Series Statement:
ESO 2314

 Record created 2017-04-01, last modified 2020-10-28

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