Posted: May 30, 2000
Civic leaders often strive to assemble tax breaks and other incentives to attract business to their communities. But in an environment in which all communities have the right to offer incentives, such costly efforts accomplish little and do nothing to reduce urban decay and suburban sprawl, according to economist and public policy professor Robert Wassmer of California State University, Sacramento.
Wassmer is the co-author of a new book titled Bidding for Business, published this month by the Upjohn Institute.
In the book, Wassmer and John E. Anderson of the University of Nebraska argue that state legislatures should restrict the use of local business incentives, allowing them only in areas with high unemployment and economic blight.
Wassmer and Anderson say "bidding for business" usually occurs between cities in the same metropolitan region. Current policies allowing any community to offer incentives, they say, lead to suburban cities attempting to wrest business from nearby central cities. In the process, the communities all sacrifice tax dollars that must then be raised in other ways.
"It's like the classic prisoners' dilemma," Wassmer says. "Local governments as a whole would be better off if none offered incentives, but they're always afraid they'll lose out because another is offering something.
"Businesses usually end up going where they would have gone with or without an incentive. But when a business threatens to go someplace else and secures an incentive offer, local politicians feel the worst thing to do is to do nothing. Politicians want to be seen as doing something to save local jobs."
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