Economics of State and Local Governments - Essay Example

Migration of individuals is not frequent since people are strongly attached to their jobs, family, friends and homes, and hence they tend to remain in their recent states. This paper will discuss whether taxes and economic incentives affect business and personal mobility decisions and how effective state economic incentives are. Taxes and economic incentives affect businesses in different ways. In certain ways, taxes and economic incentives affect the businesses positively but in other ways affect businesses negatively.

However, the particular effects to businesses depend on the type and form of the taxes and the economic incentives and how deep they touch on the businesses. This is because the taxes and economic incentives are of different nature and affect businesses differently in terms of the size of business and the sector that they operate in. From the executive summary of the research on Tax Flight by Robert Tannenwald, tax increase has a very small effect on the migration of households and therefore any state that would increase taxes can be guaranteed of a considerable gain in revenue.

In the report, people mostly migrate when they find cheaper housing facilities and not when taxes are lowered. The difference in housing between two states is usually higher than the difference in taxes and therefore it may seem as if one moves from a state to the other to find a place with lower taxes but in real sense they move due to cheaper housing (Tannenwald, 1). According to recent research, an increase in income tax barely causes any movement from one state to another both for individuals and businesses.

Economic incentives are not the core factors that influence the decision of location of businesses. The decisions mostly depend on market aspects and the quality-of-life aspects. Also, the availability of raw materials for a business does influence the location of the business.