Abstract
What constitutes a “good business climate” is often couched in monolithic and diametrically opposed terms of low taxes versus high public services. However, there is likely considerable heterogeneity across firms in their preferences for the trade-off between higher taxes and the public services they provide. Using a novel primary data set of firm expansion and relocation decisions, this analysis investigates how firms in relatively high-paying sectors express their preferences for a variety of local “business climate” attributes relative to firms in lower-paying sectors. The findings show evidence that firms in low-wage sectors view a “good business climate” differently than firms in high-wage sectors.
Highlights
Under the auspices of economic development, policy makers are charged with promoting local business expansion and attraction efforts
Local economic development professionals may promote and market the region’s low tax burden or low regulatory environment. These incentives and marketing strategies are often couched in terms of an overall “business climate” of the region with a traditionally held notion that a “good business climate” is one that will readily offer tax incentives, regulatory variances, and an overall low tax and regulatory burden
The results for the logit models when expansion was used as the dependent variable (Table 3) show location attribute preferences are different between higher-than-average and lower-than-average wage sectors
Summary
Under the auspices of economic development, policy makers are charged with promoting local business expansion and attraction efforts. SALAGHE ET AL: BUSINESS IN THE EYE OF THE EMPLOYER an alternative strategy is to forgo these types of incentives and instead focus marketing efforts on regional amenities, educational quality, infrastructure, and high-quality workforce to attract and assist business expansion. A recent issue of the Review of Regional Studies (volume 48, issue 1; 2018) presented multiple papers which discussed the history of providing incentives and provided insights on their efficacy from empirical recent studies (Bryne, 2017; Bundrick and Snyder, 2018; Calcagno and Hefner, 2018; Mitchell et al, 2018) These studies, and much of the previous literature, find that tax incentives are not major factors in business relocation or expansion c Southern Regional Science Association 2020. If benefits received from a firm locating in a state are misestimated, it is possible that a state could over bid for a firm
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