We formally demonstrate the prisoners' dilemma fueling the incentives "arms race." Our simple game (1) includes only localities that are equivalent with respect to basic location requirements; and (2) explicitly models business climate. Localities are compelled to offer incentives despite...

This is the Presidential Address at the 2006 Annual Meetings of the Southern Regional Science Association, March 30-April 1, St. Augustine, Florida. It discusses the status of fiscal decentralization in the academic literature and as a matter of policy focus. Although fiscal decentralization is...