Approximately 6 weeks ago, General Electric officially relocated its headquaters to Boston, Massachusetts. Fairfield, Connecticut had been the home of GE's headquarters for nearly 35 years; which begs the question - why relocate now? The answer is simple - tax incentives. Mayor of Boston, Martin J. Walsh, has been working hard over the past several years to rid his city of its"taxachusetts" nickname. The main tool Mayor Walsh has been utilizing is tax breaks for businesses.
GE had been threatening to leave Fairfield for a number of years but it wasn't until January, 2016 that GE announced they intended to follow through on their promise. GE ultimately decided to transition to Boston, rather than Providence, RI or Austin, TX (other cities vying for GE's business) because of Boston's generous 25M city property tax incentives and another 120M in state subsidies towards infrastructure development (roads and parking facilities). In a press conference, GE executives cited these tax incentives, as well as Boston's emphasis on small business startup, as the main reasons for their relocation.
This is an obvious application of Tiebout's essay on public goods, local expenditures and the problem of preference revelation. In this paper, Tiebout criticizes Samuelson's reliance on national government to provide public goods. Instead, Tiebout argues that localities can take the role of producers with revenue expenditure patterns as their product. Then individuals could buy/vote with their feet by moving to the locality that best suits them. In this example, we see the differing revenue expenditure patterns of Fairfield and Boston creating trade offs for individuals and corporations. In the end, this example proves that, due to heterogeneity of individuals, it is often more efficient to create a market for public goods and let individuals / corporations vote with their feet.
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