Financing Growth with Future Taxes: Evidence from TIF

• In Event: Property Tax Policies and Alternatives

Abstract

Can cities use projected property tax revenue in underdeveloped areas to stimulate business dynamism and alleviate poverty? We analyze the rollout of Tax Increment Financing state-level legislation, beginning in the 1960s, that allows municipalities to earmark future property tax revenue for economic development, and find that it leads to an increase in new business formation and job creation that would not have happen otherwise. Furthermore, it increases dynamism in affluent central counties surrounded by poorer areas. Among individuals without a college degree, this policy intervention reduces statewide poverty rates, with effects persisting for over 10 years. Our results indicate that state-level statutory frictions may hinder local governments' efficient deployment of capital.

Author

• Seohee Kim, Indiana University