concessions. The ABC, CBS, and NBC television networks are examples of firms that received economic concessions after threatening to leave New York City for New Jersey.
A state's industrial development strategy based upon tax and other fiscal incentives can suffer from major disadvantages. The incentives shift the tax burden to other taxpayers during the tax exemption period; impose opportunity costs by depriving the state of tax revenues essential for solving other state problems, such as educational and environmental ones; are not always successful as illustrated by the closure of the Volkswagen plant in Pennsylvania; and can be described as a zero sum game if new firms are attracted only from sister states in the region. Furthermore, the use of incentives to lure companies from other states can generate bad relations among states.
The National Governors' Association has recognized the problems generated by interstate competition for business firms. The association's guidelines for the use of tax and other incentives by a state to attract business firms are sensible ones, but unfortunately are dependent for success upon voluntary compliance by all states.
Congress could employ its commerce and tax policies to regulate interstate competition for industry but has evidenced little inclination to do so beyond imposing a cap on the volume of tax exempt bonds that may be used to help finance private business activities.
Chapter 9 examines another type of interstate competition -- efforts by states to maximize their tax revenues by exporting the burden to individuals and firms in sister states.