Abstract
States have attempted to attract industries by offering a variety of tax incentives and economic development programs with mixed success. States have recently begun to focus on high-tech industries, where average wages are significantly above the all industry average. This study analyzes whether a state’s tax and expenditure mix can influence high-tech industry location. Empirically, this study advances previous high-tech research by carefully modelling the government budget constraint and by considering more recent data. One emphasis will be whether rural states are inherently unable to attract high-tech industry and its high-paying jobs. In general, the empirical results suggest that a state’s fiscal policies can attract high-tech fums, but states must proceed very cautiously. Furthermore, rural states are not dealt out of the high-tech game.
Highlights
State governments have actively sought to attract new businesses to their states with a myriad of tax breaks and other policies, but it is unclear whether these policies are worthwhile (Wasylenko 1991)
The dependent variables for columns 2-6 are the first difference of the natural log of total employment, goods-producing employment, manufacturing employment, total high-tech sector (HT) employment, and nondefense HT employment
The results imply that a policy that cuts taxes and reduces highway and other expenditures deemed less beneficial to the HT sector may succeed. (Miller and Cote [1987] suggest similar policies.) policies aimed at attracting HT firms must proceed cautiously
Summary
State governments have actively sought to attract new businesses to their states with a myriad of tax breaks and other policies, but it is unclear whether these policies are worthwhile (Wasylenko 1991). Many states have changed their focus from a shotgun approach to an emphasis on the better paying, high-tech sector (HT). States may be adopting their own version of an industrial policy designed to increase the share of "good" jobs (e.g., see Lee 1992; Blakely 1989; Fosler 1988). Average wage levels for all industries are positively related to the proportion of a state's jobs that are in higher paying industries because of a demonstration effect (Treyz 1991). These positive wage spillovers illustrate another reason to attract HT industries. A potential North American free trade agreement will likely result in the contraction of low-tech industries, where internationally competitive HT industries can fill the void
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