Tax increment financing: Capturing or creating growth?

Abstract

AbstractThis research examines tax increment financing (TIF), a widely used economic development tool, and property values to determine whether TIFs capture activity that would have occurred anyway. Using 2003–2012 data from Indiana counties, we test a two‐stage model focusing on TIF adoption (stage 1) and impact on assessed value within the TIF district and outside the TIF district (stage 2). Model results show that TIF adoption is positively related to TIF use in surrounding counties, median household income and employment growth, which suggests that TIF is used to capture existing growth. The results of the impact model show that as the share of county assessed value in TIF increases, assessed value in non‐TIF areas decreases and assessed value within TIF districts does not increase, which raises concerns about the efficacy of TIF.