The Impact of Public Policy on Entrepreneurial Outcomes
Edited by Gregory M. Randolph, Michael T. Tasto and Robert F. Salvino Jr.
Chapter 6: The negative impact of recruitment policies for the unproductive entrepreneur
The 2008–09 recession in the U.S. left many states struggling with an eroding tax base and declining overall economic activity, resulting in difficult choices for their annual budget. The two choices every state faced was to either cut their spending on programs or raise revenue from existing sources (through higher tax rates). There was one possible alternative to those tough choices, which was to search out and recruit businesses to relocate to their state—thus increasing the tax base, employment, income, and economic development. States have been competing with one another, at least anecdotally, in their attempts to recruit relocating businesses. This competition leads to a “race to the bottom,” or states basically giving away many incentives that benefit only a few at the cost of the many taxpayers who already live there. How do these decisions by states affect entrepreneurs and the incentives they now face? This race to the bottom by states opens the door for an increase in unproductive entrepreneurship. Keywords: Entrepreneurship, state economic policy
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