Edited by Charlie Karlsson, Börje Johansson and Roger R. Stough
Chapter 9: Is Competition Between Regions Welfare-Increasing?
1 Gerhard C. Geerdink and Peter J. Stauvermann INTRODUCTION 9.1 Over the past 30 years, state and local governments have assumed a greater responsibility for economic development. All kind of incentives, such as tax breaks, low-cost or free land, the issuance of tax-exempt bonds, training funds, the construction of roads, and other infrastructure investments, are used to attract all kinds of firms. The main purpose is to boost regional economic activity in order to meet local economic and political objectives, for example reducing unemployment, increasing the tax revenue, creating the regional image of a high-tech area, knowledge business center, and so on. In order to meet these targets, big investments are made by local governments. Also huge amounts of subsidy are offered to firms and businesses who settle in the region. Local governments and the subsidized companies usually extol the benefits of these deals, while critics complain that they are a waste of public money. It is difficult to evaluate the competing claims of these policies. The traditional approach to evaluating policies designed to attract new plants is to calculate the number of jobs gained and the cost of the tax breaks and so on awarded to firms. Below are some striking examples. It is widely cited that DaimlerChrysler (former name: Daimler-Benz) received a $250 million ($165 000 per job) incentive package for locating in Vance, Alabama (USA); the Toyota plant in Georgetown, Kentucky (USA) was awarded $200 million ($80 000 per job); Boeing was given $50 million ($100 000...
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