Tax Increment Financing: A Propensity Score Approach

Abstract

This study examines the effect of tax increment financing (TIF) on economic growth in Indiana. TIF areas are designated with the intent of spurring economic development characterized primarily by growth in assessed value and in employment within the TIF area. We examined property-level data from 2004 to 2013 and found that the average property in a TIF area may display higher assessed values than the average property in a similarly situated non-TIF area. While both TIF and non-TIF properties tended to grow over time, the average property in a TIF area may grow by slightly more than its non-TIF counterpart. We also found that TIF does not statistically significantly affect employment or employment growth over time. While there does not appear to be a multiplicative effect of the presence of enterprise zones and TIF on employment, TIF works with property tax abatements in incentivizing job creation. Our analysis of the effect of TIF on economic development outcomes informs policy makers of the likelihood that a given area will adopt TIF in the context of the “but-for” question.

Tax increment financing: Capturing or creating growth?

“…Another study was performed by Indiana's Legislative Services Agency under the requirements of a broad, multiyear state review of tax incentives performed in concert with the Pew Center for the States (Landers & Yadavalli, 2015;Yadavalli & Landers, 2017). This study used data that are not available to outside researchers, because of confidentiality restrictions on individual businesses.…”

“…This issue motivated these conclusions by Yadavalli and Landers (2017) "the decision to adopt TIF may be spatially motivated, whereby a local unit may adopt TIF based on its proximity to an existing TIF area" (p. 323). The motivation for this in the first stage is to control for spatial bias as well as provide the interpretative value of the spatially observable effect of TIF in surrounding counties on a county's decision to create a TIF district in their own county.…”

“…He reports no employment effect of TIF, using a similar time period, but different approach. Yadavalli and Landers (2017) used parcel level data to examine the effects on firms of location within a TIF district in Indiana. They found that the average property in a TIF area saw more assessed value growth over time than similar firms outside the TIF district, the effect was modest.…”

“…We model this choice as comprised of both economic and fiscal conditions as discussed above, and as the result of observing TIF in other locations. This issue motivated these conclusions by Yadavalli and Landers (2017) "the decision to adopt TIF may be spatially motivated, whereby a local unit may adopt TIF based on its proximity to an existing TIF area" (p. 323). We add to the selection equality, the 1-year lagged change in employment, to evaluate whether job losses or gains motivate the adoption of a TIF in county i.…”

Predicting TIF Distress: A Statistical Analysis of Tax Incremental Finance Districts in Wisconsin

“…Despite the increasing use of TIF by local governments across the country, an interesting debate has emerged about TIF effects and whether it generates real benefits (Merriman 2018). Some scholars argue that TIF actually hurts property values in a variety of ways, such as sapping value from non-TIF areas or hurting regional centers when suburban TIF use is high (Dye and Merriman 2000;Hicks, Faulk, and Quirin 2015;Kovari 2009;Lester 2014;Merriman, Skidmore, and Kashian 2008;Swenson and Eathington 2002;Weber, Bhatta, and Merriman 2003;Yadavalli and Landers 2017). 1 TIF also has the potential to drain needed revenue from other taxing jurisdictions, especially school districts (Weber, Bhatta, and Merriman 2003).…”