Competitive considerations have heavy and pervasive impacts on state policies. Concerns over non-competitive tax burdens translate into pressures to keep spending, and thus taxes, low. Concern over the effects of taxes on economically attractive, mobile taxpayers encourages states to minimize taxes on footloose firms, high-income households, and affluent retirees. Competition for economic development motivates huge outlays for industrial parks, sports stadiums, convention centers, highways, and other programs.
The Economic War Among The States: State officials are in constant economic competition with each other. Candidates for state offices campaign on platforms including promises of enhancing their state’s economic development — bringing more jobs, higher incomes, and fiscal dividends for state and local governments. They point with pride to signs of economic success such as statistics on increased employment and examples of new plants. They seek track records including not losing existing employers to the lures of other states, encouraging the growth of existing firms, and drawing new employers to their state. Their challengers leap on signs of failure such as high unemployment, plant closings, layoffs, and even losses of
professional sports teams. Business groups lobby states to eliminate signs of what they call a “poor business climate.”
There is strong evidence that decisions of firms to locate, expand, and remain in particular states are heavily influenced by state policies including state and local tax levels. Firms planning to establish new plants or contemplating moves routinely solicit competitive offers from states. There are many examples of firms relocating or deciding to put their new plants in different states because of home-state taxes they consider too high.
Nearly all states respond to these solicitations for offers to draw new plants, often with tax concessions tailored to the soliciting firm. But offering such concessions only to firms considering relocation produces criticisms of state officials for not pursuing even-handed policies. More important, it induces all footloose firms to consider moves if for no other reason than to induce concessions from home states.
The impact of interstate competition has been apparent in tax policy perceived as affecting firms’ location decisions. In legislative sessions in 1997 and each of the two previous years, at least 20 states passed legislation to reduce business taxes in some way in order to encourage economic development. In addition, nearly all states allow local officials to offer concessions reducing or eliminating local taxes. The changes in Tennessee taxes shown in the Tennessee Department Of Revenue paper Business Taxes: Current Structure And Options For Change are typical of the kinds of changes being made by most states.
Successive moves of this type suggest that taxation of footloose firms, particularly those in manufacturing, is gradually being reduced. State policies have been moving in the direction of ending: (1) sales taxes on equipment and supplies using in constructing new facilities, (2) property taxes on manufacturers’ inventories, machinery, and equipment, (3) for limited times, property taxes on new plants and expansions, and (4) corporate profit taxes associated with out-of-state sales. In addition, states are enacting special tax concessions for particular industries such as oil and gas exploration and production, processing of agricultural commodities, aircraft maintenance, banking, and insurance.
The global financial crisis spreads, and thus also pushes on private consumption. Therefore, warns the Society for Consumer Research for the year 2008 before a stagnation in private consumption and thus facing a higher risk of recession.
The Society for Consumer Research (GfK) has in the recent publication of these growth forecasts from an initial 0.5 percent to the current 0 percent and thus a reduced stagnation. This was announced at the company GfK in Nuremberg with 25.08.2008. However, there are also some hope at the dark sky, because the company could announce that the downward trend of consumer sentiment has deteriorated further. Therefore, increased the forecast for the GfK consumer climate indicator of 1.8 points in October after 1.6 points in September.
The GfK had, however, the announcement of the figures admit that the surveys of consumers before September 15 took place. This morning, 15.09.2008, is probably as a black day for banks in history. Had the surveys of consumers after that date took place, then perhaps the consumer climate substantially worse and the index would have done no improvement. Its impact will be in the index for the month of November are introduced.
According to the GfK reports have therefore been the economic and income expectations of consumers in the month of September improved significantly, however, the outlook for the German economy (recession looming threat) is still very negative. Many citizens are even planning major purchases within the next few months, so retailers never so bad Christmas business may emanate. Reasons were partly falling costs for energy and gasoline.
About recession and stagnation
A stagnation of the economy means that no growth achieved neither positive nor negative sense. The economy and hence the economy of a country occurs on the body. Worse than a stagnation, a recession in the economy (economic performance) of a country is reduced. This would have a negative impact on individuals and not just on the economy of a country.
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