Author ORCID Identifier

https://orcid.org/0000-0002-3994-8558

Year of Publication

2020

Degree Name

Doctor of Philosophy (PhD)

Document Type

Doctoral Dissertation

College

Graduate School

Department

Public Policy and Administration

First Advisor

Dr. J.S. Butler

Second Advisor

Dr. Merl Hackbart

Abstract

Tax increment financing (TIF) policy is the most popular economic development policy in the United States. Despite the popularity of research on TIF, only a few comprehensive reviews of previous studies on TIF policy tool have been conducted. In light of this, the purpose of this paper is to review previous TIF studies relating to the controversy surrounding TIF programs. Specifically, previous studies do not provide clear answers about the efficacy of TIF and, indeed, raise more questions than answers. At the same time, this situation begs the question: why do local governments frequently use economic development policies? This is the most urgent task in the economic development academic area because previous studies have not answered that question in detail. To analyze the effects of competition and the forms of government on the utilization of business incentives at the local government level, this study focuses on two major incentives: tax credit and tax increment financing. The statistical results show that the competition mechanisms operate differently for each of the incentives. More specifically, the council-manager system considerably constrains the overall adoption and extent of use of business incentives. These results could indicate the prevalence of a particular form of government for economic development policies. To determine why local governments often use tax-based incentives, this study focuses on five major tax-based incentives: job creation tax credits, investment tax credits, R&D credits, property tax abatements, and customized job training subsidies. The statistical results indicate that a state government’s prevailing political ideology influences the choice of economic development activities. Accordingly, a more liberal state may be more likely to discourage property tax abatements and customized job-training subsidies and encourage job creation tax credits. Additionally, the competition mechanism does not operate as a trigger for tax-based incentives. This study also finds that state economic conditions are inversely related to the use of incentives. This result could imply the prevalence of political factors in the use of incentives. Clear evidence about the effectiveness of economic development incentives is limited. To bridge this research gap, this study uses the Upjohn Institute Panel Database on Incentives and Taxes (PDIT). Unemployment and employment rates are used to analyze the effectiveness of tax-based incentives. Statistical results indicate that tax incentives have a marginal impact on employment status and limited benefits to states. Only the R&D tax credit statistically significantly increases employment rates. This result supports the interpretation of economic development policies as a zero-sum game

Digital Object Identifier (DOI)

https://doi.org/10.13023/etd.2020.295

Share

COinS