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On the relationship between tax increment finance and property taxation

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  • Skidmore, Mark
  • Kashian, Russ

Abstract

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.

Suggested Citation

  • Skidmore, Mark & Kashian, Russ, 2010. "On the relationship between tax increment finance and property taxation," Regional Science and Urban Economics, Elsevier, vol. 40(6), pages 407-414, November.
  • Handle: RePEc:eee:regeco:v:40:y:2010:i:6:p:407-414
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    References listed on IDEAS

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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. Jack R. Huddleston, 1981. "Variations in Development Subsidies under Tax Increment Financing," Land Economics, University of Wisconsin Press, vol. 57(3), pages 373-384.
    3. Marianne Bertrand & Esther Duflo & Sendhil Mullainathan, 2004. "How Much Should We Trust Differences-In-Differences Estimates?," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 119(1), pages 249-275.
    4. Anderson, John E., 1990. "Tax Increment Financing: Municipal Adoption and Growth," National Tax Journal, National Tax Association;National Tax Journal, vol. 43(2), pages 155-163, June.
    5. 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.
    6. David F. Merriman & Mark L. Skidmore & Russ D. Kashian, 2011. "Do Tax Increment Finance Districts Stimulate Growth in Real Estate Values?," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 39(2), pages 221-250, June.
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    Cited by:

    1. Twyla Blackmond Larnell & Davia Cox Downey, 2019. "Tax Increment Financing in Chicago: The Perplexing Relationship Between Blight, Race, and Property Values," Economic Development Quarterly, , vol. 33(4), pages 316-330, November.
    2. Marina Spahlinger & Nancy Wayne, 2019. "Community Revitalization Levy as a Municipal Financing Mechanism in Alberta," SPP Research Papers, The School of Public Policy, University of Calgary, vol. 12(4), February.

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