Fees and Firms: An Empirical Examination of the Relationship between Development Impact Fees and Firms

By Jones, Adam T. | Atlantic Economic Journal, June 2015 | Go to article overview

Fees and Firms: An Empirical Examination of the Relationship between Development Impact Fees and Firms


Jones, Adam T., Atlantic Economic Journal


Introduction

Since the tax revolt of the late '70s and early '80s local governments have been searching for and implementing revenue alternatives to the traditional property tax. One such alternative is a system of development impact fees. Impact fees started their ascent in popularity in the late 1970s and have become especially popular in the South and the West. According to a survey by Duncan Associates, over half the states have adopted impact fee enabling legislation and many more jurisdictions use fees through home-rule authority even though the state has not set up specific enabling legislation (Mullen 2012). Yet, while impact fees have become popular, their effect on business activity and firm location is still an area of active research vital to local policy makers.

Development impact fees are levied on both residential and commercial development. While the literature examining fees' effect on residential development is maturing, the literature on the relationship between fees and commercial development is still in its infancy. Theoretical models of impact fees find them to be an efficient way to pay for infrastructure. Brueckner (1997) uses a linear city model, with an infinitely dense employment center located at one end of the line and progressively less dense residential development along the length of the line, and finds fees to be an efficient way to pay for infrastructure required by residential development when compared to cost sharing methods. Jones and Snow's theoretical work (2015) compliments Brueckner's by using a circular city model to analyze whether a residential property tax system, fee system, or a cost sharing system, is the efficient way to pay for commercial development's infrastructure requirements. By maximizing a utilitarian welfare function they find a fee only system to be welfare maximizing, a result consistent with Jones' (2013) finding that fees are superior to mileage or sales tax funding of infrastructure to support commercial development.

Empirical research on impact fees and employment has yielded mixed results. The first examination by Nelson and Moody (2003) uses pooled cross sectional data on employment and a constructed fee size variable. The nature of the data and the method for constructing the "fees per building permit" variable used to determine the relationship between fees and job creation requires that their estimates be interpreted as correlation, not causation. Their result is consistent with Jeong's (2006) finding that rapid growth is a significant factor in a jurisdiction's decision to adopt fees. Jeong and Feiock (2006) reach a similar conclusion as Nelson and Moody using a longer lag and a binary variable for county fee usage. However, Burge and Ihlanfeldt (2009) use more detailed panel data, including statutory fee levels, to find that an increase in fees results in less job growth after a short lag than for jurisdictions that either do not use fees or leave their fees unchanged. Their result suggests that fees have a negative impact on employment levels. Economic Development Quarterly (unpublished) finds that the effect of fees varies between industries with a more negative effect on employment within industries that can easily avoid the fee by locating in other jurisdictions. The work presented in this paper empirically compliments a secondary theoretical result in Jones and Snow that the equilibrium number of firms in a jurisdiction using fees is less than the equilibrium in a jurisdiction without fees and is consistent with the reduced employment levels of Burge and Ihlanfeldt.

Model

One way to conceptualize impact fees is as a fixed cost. It is easy to imagine fees in a similar vein to construction costs paid up front in cash or financed over time such as any other fixed cost. Extending Bresnahan and Reiss' (1991) model of firm entry to include fees as an additional fixed cost provides a structure to analyze the relationship between fees and the number of firms. …

The rest of this article is only available to active members of Questia

Already a member? Log in now.

Notes for this article

Add a new note
If you are trying to select text to create highlights or citations, remember that you must now click or tap on the first word, and then click or tap on the last word.
One moment ...
Default project is now your active project.
Project items
Notes
Cite this article

Cited article

Style
Citations are available only to our active members.
Buy instant access to cite pages or passages in MLA 8, MLA 7, APA and Chicago citation styles.

(Einhorn, 1992, p. 25)

(Einhorn 25)

(Einhorn 25)

1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

Note: primary sources have slightly different requirements for citation. Please see these guidelines for more information.

Cited article

Fees and Firms: An Empirical Examination of the Relationship between Development Impact Fees and Firms
Settings

Settings

Typeface
Text size Smaller Larger Reset View mode
Search within

Search within this article

Look up

Look up a word

  • Dictionary
  • Thesaurus
Please submit a word or phrase above.
Print this page

Print this page

Why can't I print more than one page at a time?

Help
Full screen
Items saved from this article
  • Highlights & Notes
  • Citations
Some of your highlights are legacy items.

Highlights saved before July 30, 2012 will not be displayed on their respective source pages.

You can easily re-create the highlights by opening the book page or article, selecting the text, and clicking “Highlight.”

matching results for page

    Questia reader help

    How to highlight and cite specific passages

    1. Click or tap the first word you want to select.
    2. Click or tap the last word you want to select, and you’ll see everything in between get selected.
    3. You’ll then get a menu of options like creating a highlight or a citation from that passage of text.

    OK, got it!

    Cited passage

    Style
    Citations are available only to our active members.
    Buy instant access to cite pages or passages in MLA 8, MLA 7, APA and Chicago citation styles.

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn, 1992, p. 25).

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn 25)

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn 25)

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences."1

    1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

    Cited passage

    Thanks for trying Questia!

    Please continue trying out our research tools, but please note, full functionality is available only to our active members.

    Your work will be lost once you leave this Web page.

    Buy instant access to save your work.

    Already a member? Log in now.

    Search by... Author
    Show... All Results Primary Sources Peer-reviewed

    Oops!

    An unknown error has occurred. Please click the button below to reload the page. If the problem persists, please try again in a little while.