Local Fiscal Impacts of Tax Abatements: A Labor Market Approach

Abstract

A property tax abatement is one instrument in an array of policy tools employed across the United States to augment local business development. The fiscal effects on multiple governmental units for a typical manufacturing expansion in a rural county are analyzed employing a labor market approach to define the local impact area. The results indicate the county granting the tax abatement bears most of the costs of the tax abatement while most of the benefits of a tax abatement for a manufacturing expansion in a rural area flow outside the county granting the abatement. The analysis implies a regional approach to increased coordination between the affected taxing jurisdictions could be more than uncoordinated policy efforts.