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The state role in economic development policy hasincreased as the federal government has devolved selectedprograms to balance growth and incomesamong different part of the country. Rapid growth incoastal states and the suburban areas around manycities, and stagnation or decline in areas that have remainedrural has intensified economic developmentdebate. Within the broad spectrum of economic developmentpolicy, significant resources are focused onstate industrial recruitment through tax abatements.This article uses the Michigan experience to illustratehow current application of tax abatements may increasegeographic income inequality, and that someadjustment in the policy would be needed if policymakers want to rectify the unequal distribution of taxexpenditure. We also argue that localities have fewincentives to reject or limit, which can lead to overuseof the tool. Relatively straightforward countervailingmeasures such as a cap on per capita use of abatements,together with payments to localities that do notuse their quota of abatements, could improve the effectivenessof overall state economic development policyby increasing the level of local public debate aboutthe use of abatements and making funds available foralternatives to tax abatements.

Subject(s): Financial Economics

Issue Date: 2007

Publication Type: Journal Article

PURL Identifier: Published in: Journal of Regional Analysis and Policy, Volume 37, Issue 1

Journal of Regional Analysis and Policy Page range: 30-34

Total Pages: 5

Record appears in: Mid-Continent Regional Science Association > Journal of Regional Analysis and Policy

Autor: Loveridge, Scott ; Nizalov, Denys


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