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This paper investigates the effects of regional tax incentives, specifically the Nebraska state investment tax credit, on the growth of investment in the Nebraska manufacturing industry through the estimation of a capital stock series in the Nebraska manufacturing sector covering the 1977-2000 period. Using the classical cost of capital model, we found that lagged impacts on state investment behavior were not significant, and that the elasticity of investment to tax policy is relatively small. Correcting for measurementerror in the tax term using the tax variables of other states, instrumental variable estimates showed significant effects of tax changes, -1.18 in manufacturing equipment and -1.29 in manufacturing structures. The results suggest that Nebraska tax policy is effective, but most of the effects are crowded out by tax policy competition from other states.