When Amazon announced in 2017 that it was shopping for a location for a second North American headquarters, cities across the United States, Mexico, and Canada, offered up sweeteners. An economic development company sent the online retailer a 21-foot saguaro cactus to try to entice Amazon to Tucson, Arizona. Hundreds of other cities offered tax breaks, infrastructure improvements, and other temptations.
In November 2018, Amazon announced it had chosen Virginia and New York—and quickly found itself facing a backlash. In Queens, critics included elected officials who questioned, among other things, why the company should be given hundreds of millions of dollars in tax breaks at a time when city services were starved for investment. In February, Amazon cancelled its plans to build in the borough—and left many people arguing about whether the subsidies New York had offered would have paid off for the area, or just the company.
The primary winners of such “beauty contests” are likely to be the companies themselves, rather than the chosen locations, according to a survey of prominent economists. Chicago Booth’s Initiative on Global Markets put a general question to its US Economic Experts Panel, asking who typically captures most of the value when areas offer subsidies to compete to bring a company to town. Almost half of the respondents said companies capture most of the value, and the results were even stronger when weighted by respondents’ confidence. But when asked if a federal rule prohibiting such subsidy competitions would improve welfare for the average taxpayer, the results were more mixed.