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On the relationship between tax increment finance and property taxation

  • Skidmore, Mark
  • Kashian, Russ

The purpose of this research is to examine the inter-jurisdictional and dynamic relationships between the use of the tax increment finance development tool and property taxation. Tax increment finance can move large portions of the tax base off the general fund tax rolls. Further, over time there is a reallocation of revenue streams away from the non-municipal overlying jurisdictions to the municipal government, and these resources are used to subsidize development. Over time local authorities may therefore adjust tax rates in response to changes in the tax base. Using data from nearly all Wisconsin municipalities over the 1990-2003 period, we find that the use of tax increment finance leads to increases in property tax rates in non-municipal overlapping jurisdictions while reducing rates in municipal governments. The tax burden reallocation appears to be temporary; non-municipal tax rates fall and municipal tax rates increase when tax increment finance districts close. This research shows that the burden of covering the tax increment finance development subsidies results in explicit changes in tax rates across jurisdictions. These findings serve to more fully inform the decision makers of the implications of using the tax increment tool.

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File URL: http://www.sciencedirect.com/science/article/B6V89-504STCB-1/2/878fd0e33cff6fe38a7bb4e547ba801d
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Article provided by Elsevier in its journal Regional Science and Urban Economics.

Volume (Year): 40 (2010)
Issue (Month): 6 (November)
Pages: 407-414

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Handle: RePEc:eee:regeco:v:40:y:2010:i:6:p:407-414
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  1. Anderson, John E., 1990. "Tax Increment Financing: Municipal Adoption and Growth," National Tax Journal, National Tax Association, vol. 43(2), pages 155-63, June.
  2. Mark Skidmore & David Merriman & Russ Kashian, 2009. "The Relationship between Tax Increment Finance and Municipal Land Annexation," Land Economics, University of Wisconsin Press, vol. 85(4), pages 598-613.
  3. Jack R. Huddleston, 1981. "Variations in Development Subsidies under Tax Increment Financing," Land Economics, University of Wisconsin Press, vol. 57(3), pages 373-384.
  4. Marianne Bertrand & Esther Duflo & Sendhil Mullainathan, 2002. "How Much Should We Trust Differences-in-Differences Estimates?," NBER Working Papers 8841, National Bureau of Economic Research, Inc.
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