Who Offers Tax-Based Business Development Incentives?

Document Type

Article

Publication Date

2006

Abstract

Many American communities seek to attract or retain businesses with tax abatements, tax credits, or tax increment financing of infrastructure projects (TIFs). The evidence for 1999 indicates that communities are most likely to offer one or more of these business development incentives if their residents have low incomes, if they are located close to state borders, and if their states have troubled political cultures. Ten percent greater median household income is associated with a 3.2 percent lower probability of offering incentives; ten percent greater distance from a state border is associated with a 1.0 percent lower probability of offering incentives; and a 10 percent higher rate at which government officials are convicted of federal corruption crimes is associated with a 1.2 percent greater probability of offering business incentives. TIFs are the preferred incentive of communities whose residents have household incomes between $25,000 and $75,000; whereas TIFs are much less commonly offered by communities whose residents have household incomes below $25,000. The need to finance TIFs out of incremental tax revenues may make it infeasible for many of the poorest of communities to use TIFs for local business development.

Comments

NBER working papers are circulated for discussion and comment purposes. They have not been peer reviewed or been subject to the review by the NBER Board of Directors that accompanies official NBER publications.

© 2011 by R. Alison Felix and James R. Hines, Jr.. All rights reserved. Short sections of text, not to exceed two paragraphs, may be quoted without explicit permission provided that full credit, including © notice, is given to the source.

The publisher's final version may be found as: Hines, James R., Jr., co-author. "Who Offers Tax-Based Business Development Incentives?" R. A. Felix, co-author. J. Urb. Econ. 75 (2013): 80-91.

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