Generous tax breaks may induce executives to make uneconomic business decisions, which would make the economy worse off. Still, surveys of business executives usually show that state subsidies only come into play after businesses have satisfied themselves that the competing areas meet their labor, market, transportation and infrastructure needs. Far more serious is the charge that the more money state and local governments pour into business incentives the less money they have for public services. Government does what private enterprise can't, either because customers can't be excluded from using services or charged market prices for what they consume. In an era of tight budgets and tax rebellions, state governments shouldn't be chasing smokestacks, but concentrating scarce resources on opening libraries, repairing roads, and restoring vitality to the public school system and safety to public streets.
Advocates counter that the concern is exaggerated.
Indeed, economic development programs often end up nurturing traditional government functions. For example, they can accelerate infrastructure projects. In many parts of the country, community colleges and technical institutes, the bricks and mortar of the nation's technical training system, have grown along with business incentives. Tax revenue lost from tax competition is at least partly offset by increased taxes from other sources. Government has a lousy record in picking business winners.