Interstate Relations: The Neglected Dimension of Federalism

By Joseph F. Zimmerman | Go to book overview

8
Interstate Competition for Tourists, Sports Franchises, and Business Firms

There typically is competition among states in a federal system for a greater share of national revenues and the location of national government facilities, including research laboratories and regional offices of national agencies. In addition, states engage in interstate economic competition by advertising to attract tourists and gamblers and by tax and other incentives to attract business firms, retain firms considering relocation to another state or nation, and encourage firms to expand in the state. Among these firms are those holding major and minor league sports franchises which provide jobs for residents and income for a variety of businesses, including hotels and restaurants.

Relatively little criticism has been directed at state tourist advertising, but serious questions have been raised about the desirability of interstate competition for business firms. Critics contend that tax and other incentives distort locational decisions, do not always produce net benefits for a state, little or no accountability exists relative to the governmental incentives, and such competition is a zero sum game with respect to firms which have decided to relocate or to construct a new factory. Kentucky's attraction of a Canadian steel firm in 1993 by a tax incentive of approximately $350,000 per new job for a 400-employee plant convinced several observers that interstate competition for industry is out of control and should be curtailed by Congress. 1

What had been primarily interstate competition for industry in the 1950s and 1960s became international competition in the 1970s as many nations offered incentives to foreign business firms. Other nations with low-wage rates, such as China, have been able to attract certain types of labor-intensive foreign firms without offering other economic incentives. States can do little to offset this competition.

This chapter briefly examines the competition for tourists, gamblers, and sports franchises and focuses its attention primarily upon interstate competition for industry. In particular, the importance of taxes and regulatory policies of states in influencing the location or expansion of plants is analyzed.

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