Racing to the Bottom?

Abstract

Does intrajurisdictional tax competition lead local governments to offer larger tax abatements to firms? The authors build upon the traditional literature that models tax abatements as a negotiation between individual governments and firms by including systemic political and economic trends affecting the bargaining power of local governments and businesses. The authors use a longitudinal data set from 1983 to 2004 with detailed information on the 4,408 individual tax abatements negotiated between local governments and firms to examine how tax abatement generosity varies in response to the relative bargaining position of governments and firms. They find that as Ohio has increased the number of local governments able to offer tax abatements, local governments have offered larger abatements to firms.