September 16, 2014
Emily Badger in Wonkblog had an interesting discussion of the issues around state tax incentives to lure or keep businesses. The piece notes that many economists believe that it would be good to ban these incentives since it ends up being a zero sum game. It then includes many comments implying that any bans would be difficult to enforce.
While it is certainly true that enforcement would be difficult, it is worth noting that parallel issues arise in international trade all the time. A major goal of many trade deals is to prevent countries from subsidizing their own industries to give them an advantage in international competition. There are often major disputes over what constitutes a subsidy. For example, Boeing and Airbus frequently end up in suits before the WTO over allegations of unfair subsidies. Nonetheless, few people dispute the desirability of trade agreements attempt to restrict subsidies.
The situation at the state level is comparable. There will always be grey areas as states try to push the limits of acceptable subsidies, but that doesn’t mean it is not desirable to outlaw the general practice. Just as with international trade, such an agreement can be expected to substantially reduce the amount of money committed to firm specific subsidies.
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