Mark A. Jenn Farrokh Nourzad


This paper tests the "arms race" hypothesis, which postulates that states tend to increase their incentive offerings to new firms if such incentive programs are in use in other states that are perceived to be direct competitors. Using a pooled time-series/cross-section sample of twelve states covering the period from 1969 through 1985 and a model that controls for the effects of various economic and political factors, we find strong support for the "arms race" hypothesis. This result is robust to the alternative specifications of the incentive offerings and different measures of the degree of competition among states.