A Quantitative Analysis of Subsidy Competition in the U.S.

I use a quantitative economic geography model to explore subsidy competition among U.S. states.I ask what motivates state governments to subsidize …rm relocations and quantify how strong their incentives are.I also characterize fully non-cooperative and cooperative subsidy choices and assess how far away we are from these extremes.I …nd that states have strong incentives to subsidize …rm relocations in order to gain at the expense of other states.I also …nd that observed subsidies are closer to cooperative than non-cooperative subsidies but the potential losses from an escalation of subsidy competition are large.