Abstract
In this paper the increasing intensity of intermunicipal and interstate economic competition in the USA is noted. It is argued that the federal structure of the USA, the present political climate, and the mobility of capital combine to produce a situation of positive feedback leading to everincreasing subsidies. The situation constitutes a classic prisoner's dilemma. Decreased competition would be in the interests of all units of government. However, there is no way that a state or local government can opt out of the competition unilaterally and no mechanism by which collective action can be taken to reduce the intensity of competition. Also considered in this paper are the aggregate effects of local economic development programs in terms of taxes and public expenditures, efficiency, and equity, and several less commonly discussed considerations.
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