The Economics of Location-Based Tax Incentives

15 Pages Posted: 6 Nov 2001

See all articles by Edward L. Glaeser

Edward L. Glaeser

Harvard University - Department of Economics; Brookings Institution; National Bureau of Economic Research (NBER)

Date Written: October 2001


Many local governments offer rich tax deals to firms to get these firms to come to their cities. In this brief essay, I review the economics of location-based tax incentives. I first address the positive economics of these incentives and present five theories of why these tax incentives occur. I then consider the normative aspects of these incentives and discuss the conditions under which these theories lead to optimal locations of firms and to optimal bundles of public goods. In general, I argue that tax incentives will generally lead to more efficient locational decisions. There may be undesirable redistributional consequences of these incentives, but these are best handled by national redistribution policy.

Suggested Citation

Glaeser, Edward L., The Economics of Location-Based Tax Incentives (October 2001). Harvard Institute of Economic Research Paper No. 1932. Available at SSRN: or

Edward L. Glaeser (Contact Author)

Harvard University - Department of Economics ( email )

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