Racing to the Bottom at Different Speeds

Scholars often assert that intra-state competition increases the ability of firms to extract tax abatements by playing local governments off of one another. We test this proposition using data on the more than 5,000 tax abatement agreements signed in Ohio between 1983 and 2004 under its enterprise zone program. We articulate a political economic model of tax abatement generosity that models the interplay between the individual decisions of local governments and firms and the systemic political and economic forces shaping their decisions. Wfind that as intra-state competition increases, local governments offer larger abatements to firms. Rural governments, and urban poor governments to a lesser degree, significantly increased their generosity as intra-state competition increased.