| The Recent Literature on Tax Incentives
Bidding for Business analyzes one metropolitan regions (Detroits) experience using economic development incentives over a 23-year period. Using a regression analysis, the Upjohn Institute authors show that, in the beginning, an entrepreneurial jurisdiction offering a tax incentive can be successful in steering businesses and reducing unemployment rates. Unfortunately, after a while a copycat phenomenon takes over, and everyone else in the metropolitan area begins offering competing economic development incentives that neutralize the effectiveness of the original idea. In fact, there is a net revenue loss to the entire region as a result of an across-the-board depression of business taxes.
Is it ever efficient for communities to offer economic development incentives? Bidding for Business indicates it is, but the incentives must be regulated along the lines of enterprise zones in which tax breaks can be targeted only to high-unemployment and fiscally blighted areas.