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If localities offer incentives such as tax breaks or tax-exempt financing to firms that provide...

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Finance

If localities offer incentives such as tax breaks or tax-exempt financing to firms that provide new investment in the community, a common complaint is that this disadvantages existing firms that receive no similar incentives and yet maybe in the same business. Is this correct? Suppose that one community offers an incentive for new investment that is successful in actually attracting new investment. Work through the effects on the return to capital in the community, on the local labor market, and on the land market in the community.

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