Abstract
T here is little evidence to support the significance of state and local government incentives for inducing private investment. Nonetheless, state and local governments apparently believe that they have the means, either through legislative action or persuasion, to influence the level of economic activity in their region. This belief is evidenced by the fact that tax-free state and local revenue bond financing is offered to industry in 45 states; 29 states offer other types of low-interest loans; 25 states do not collect sales taxes on newly purchased industrial equipment; 38 do not levy inventory taxes on goods in transit; virtually all states have industrial development agencies; and many state and local governments offer tax credits, abatements, and rapid depreciation to encourage new investment in plant and equipment. Why do state and local governments offer these incentives? Presumably the objective is to improve that state's business climate on the assumption that economic developTax li_ sLicinG | THE
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