By estimating employment elasticities of various state-level fiscal policies we find that state tax cuts are inefficient job creators, with an elasticity between 0 and -0.1, and lead to a deterioration in state budgets. In contrast, we find that more state government spending on higher education is approximately self-financing, creating enough additional jobs, and, thereby, tax revenue, to offset the higher spending. This suggests that states competing for business and wealthy cross-state migrants by offering low taxes are pursuing an inferior strategy compared to competing on a well-funded, high-quality state higher-education system.