Investment Strategy and State and Local Economic Policy

State governments are ultimately competitors in their economic policies when people, products and capital are free to move across state borders. Nowhere is this competition more apparent than in the United States where individual states compete to promote economic growth by attracting industry with tax holidays, outright grants, subsidized financing and other means. Yet, the arguably greater influence of state fiscal policy on investment decisions has largely been ignored. This book redresses that deficiency by providing a collection of chapters which discuss the theoretical and practical linkage between investment strategy and state economic policy. Specifically, it uses changes in relative state burdens as a measure of state fiscal policy and shows that by altering the incentives to work, save and invest, changes in a state's tax burden relative to other states influence decisions on whether, how much and where to invest.

The book is divided into three parts. The first section provides the theoretical framework for the book and discusses application of the basic model to explain the persistent differences in observed real income across states; the level of economic activity; and business starts and failures. The second section discusses, among other things, the implications of changes in state economic policy for investments in real estate; common stocks of small capitalization firms; and state general obligation bonds. The third section of the book, which examines the political dimensions of state economic policy, begins with a discussion of the effect of state economic policy on relative population shifts and reapportionment and ends with a proposal for a flat tax.

VICTOR A. CANTO is President of A.B. Laffer, V.A. Canto & Associates. A former professor at both the University of California at Los Angeles and the University of Southern California, he has written numerous articles in the areas of international economics, public finance and macroeconomics. His articles have appeared in many leading economic journals and financial publications. Dr. Canto has authored, edited, or co-edited a number of books including Monetary Policy, Taxation, and International Investment Strategy (Quorum Books) and Supply-Side Portfolio Strategies (Quorum Books), both co-edited with Arthur B. Laffer.

ARTHUR B. LAFFER is Chairman of A.B. Laffer, V.A. Canto & Associates. Well known for formulating the Laffer Curve--the proposition that increases in tax rates beyond a certain point are counterproductive--he has served as a member of President Reagan's Economic Policy Advisory Board, a consultant to the Secretaries of Treasury and Defense during the Nixon and Ford Administrations and as Chief Economist at the Executive Office of the President, Office of Management and Budget during the Nixon Administration. In addition, he as held chaired professorships at Pepperdine University and the University of Southern California and taught at the University of Chicago.

ROBERT I. WEBB is an Associate Professor of Commerce at the McIntire School of Commerce of the University of Virginia. He has published articles in such journals as the Journal of Econometrics, the Journal of Business and Economic Statistic, the Southern Economic Journal and the Journal of Futures Markets. A former trader for the World Bank and member of the Chicago Mercantile Exchange, he has also served as Senior Financial Economist at the Chicago Mercantile Exchange, the Executive Office of the President, Office of Management and Budget, and the Commodity Futures Trading Commission.

VICTOR A. CANTO is President of A.B. Laffer, V.A. Canto & Associates. A former professor at both the University of California at Los Angeles and the University of Southern California, he has written numerous articles in the areas of international economics, public finance and macroeconomics. His articles have appeared in many leading economic journals and financial publications. Dr. Canto has authored, edited, or co-edited a number of books including Monetary Policy, Taxation, and International Investment Strategy (Quorum Books) and Supply-Side Portfolio Strategies (Quorum Books), both co-edited with Arthur B. Laffer.

ARTHUR B. LAFFER is Chairman of A.B. Laffer, V.A. Canto & Associates. Well known for formulating the Laffer Curve--the proposition that increases in tax rates beyond a certain point are counterproductive--he has served as a member of President Reagan's Economic Policy Advisory Board, a consultant to the Secretaries of Treasury and Defense during the Nixon and Ford Administrations and as Chief Economist at the Executive Office of the President, Office of Management and Budget during the Nixon Administration. In addition, he as held chaired professorships at Pepperdine University and the University of Southern California and taught at the University of Chicago.

ROBERT I. WEBB is an Associate Professor of Commerce at the McIntire School of Commerce of the University of Virginia. He has published articles in such journals as the Journal of Econometrics, the Journal of Business and Economic Statistic, the Southern Economic Journal and the Journal of Futures Markets. A former trader for the World Bank and member of the Chicago Mercantile Exchange, he has also served as Senior Financial Economist at the Chicago Mercantile Exchange, the Executive Office of the President, Office of Management and Budget, and the Commodity Futures Trading Commission.