Firm Relocation Threats and Copy Cat Costs

Darin Wohlgemuth, Maureen Kilkenny
March 1996  [95-WP 142]

With increasing frequency, state governments offer incentive packages to keep companies from leaving. But these tax incentive packages can cost more than foregone revenues from the single threatening firm. Other firms are encouraged to demand similar tax breaks. The authors explicitly consider the role of these copy cats in determining a government's optimal response to firm relocation threats. The information may help governments distinguish for which cases offering incentives is a worthwhile investment.

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