Local Government Tax and Land Use Policies in the United States: Understanding the Links

By Helen F. Ladd; Lincoln Institute of Land Policy | Go to book overview

5. Tax policies to promote economic development

Helen F. Ladd

Tax instruments are frequently used as explicit tools of land policy. As discussed in Chapter 7, the goal is sometimes to limit development to preserve open space. In other situations the goal is to promote more intensive use of the land by encouraging economic development. This chapter focuses on two of the strategies used by local governments to promote local economic development, particularly in metropolitan areas. 1 One strategy is to provide tax abatements to new or expanding firms for a specified period of years. A second, related, strategy is to target the tax relief to spatially defined areas, often referred to as enterprise zones. Other tax policies to promote development include reducing the property taxes on improvements relative to taxes on land, a strategy currently used only by Pittsburgh and a few other Pennsylvania cities, and financing the public infrastructure needed for economic development from the tax increments generated by the development. These two strategies are described and evaluated in Chapters 6 and 9.


TAX ABATEMENTS

Tax abatements can be viewed as 'tax expenditures' in that the same economic development goals could be achieved through the expenditure side of the budget. For example, giving a firm a tax abatement is comparable to taxing the firm at the full tax rate and then appropriating money to subsidize the firm's investment decision. Typically, tax expenditures receive less public scrutiny than comparable subsidies appropriated as expenditures. This lack of scrutiny may help to account for the widespread use of tax abatements by local governments despite the conventional wisdom of economists that many of them are not very effective.

In principle one should judge the effectiveness of tax abatements in the same way one would judge the effectiveness of any economic development strategy, namely by comparing the costs of the abatement with the benefits.

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Local Government Tax and Land Use Policies in the United States: Understanding the Links
Table of contents

Table of contents

  • Title Page iii
  • Contents v
  • Figures vii
  • Tables viii
  • List of Contributors x
  • Acknowledgements xiii
  • Lincoln Institute of Land Policy xiv
  • 1. Introduction 1
  • Notes 21
  • References 21
  • Part I - Interactions Between Tax and Land Policies 23
  • 2. Theoretical Controversies: Land and Property Taxation 25
  • Notes 38
  • References 39
  • Notes 48
  • References 48
  • References 53
  • 3. Land Use Regulation as a Fiscal Tool 55
  • Notes 72
  • References 72
  • Notes 80
  • References 81
  • 4. Effects of Taxes on Economic Activity 82
  • Notes 99
  • References 99
  • Notes 107
  • Notes 115
  • 5. Tax Policies to Promote Economic Development 116
  • Notes 128
  • References 129
  • Part II - Tax Policy as a Land Use Tool 131
  • 6. the Pittsburgh Experience with Land- Value Taxation 133
  • Notes 141
  • References 142
  • 7. Property Tax Treatment of Farmland: Does Tax Relief Delay Land Development? 144
  • Notes 157
  • References 159
  • 8. Incentives, Firm Location Decisions and Regional Economic Performance 168
  • Notes 180
  • References 180
  • 9. Tax Increment Financing as a Tool of Redevelopment 182
  • Notes 196
  • References 197
  • Part III - Fiscal and Distributional Impacts 199
  • 10. Fiscal Impacts of Business Development in the Chicago Suburbs 201
  • Notes 212
  • References 214
  • Appendix 215
  • 11. Who Pays Development Fees? 218
  • Notes 231
  • References 233
  • 12. Regional Tax Base Sharing: the Twin Cities Experience 234
  • Notes 251
  • References 253
  • Index 255
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