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

because the goals of encouraging local economic activity and providing jobs to disadvantaged zone residents are typically quite clear. For these programmes, the research shows that the cost per new job per zone resident is quite high, and probably exceeds $40 000 per year.

Clearly, there is room for additional research on the effects of tax abatements and enterprise zones. One of the obvious dangers in evaluating programmes such as enterprise zones is that they are likely to be established in areas with unusually high unemployment or at times when unemployment is at a peak. As a consequence of these extreme starting points, the unemployment rate is likely to go down relative to other areas or over time even in the absence of the programme. This observation makes it particularly important that control groups be used in the evaluation. Ideally, the control group should be randomly chosen. For example, the state might randomly select areas for enterprise zone designation from among a number of areas applying for zone status. The areas not selected could then be used as control groups with which the outcomes in the participating zones could be compared. The use of comparable areas as controls will directly address the challenge of determining what would have happened in the zone in the absence of the tax abatement programme. However, it does not address the other thorny analytical question of whether the new jobs in the zone represent net new jobs for the metropolitan area or simply jobs that were transferred from nearby areas.


NOTES
1.
See Chapter 8 for new work by William Fox and Matthew Murray on tax incentives designed to attract large new firms in rural areas.
2.
One exception is the work by Robert Wassmer (see, for example, Wassmer, Urban Studies), who examines the impact of tax abatements and other local development strategies on business activity. He concludes that local fiscal incentives typically have little or no effect on local business activity as measured by employment or value added. Moreover, the effectiveness of such incentives appears to vary with the characteristics of the community. For example, Wassmer found that tax abatements for industrial property were more likely to induce additional manufacturing activity only in the communities that were the least desirable for manufacturing, namely those with high housing density and old capital stock. Whether his findings are generalizable to other metropolitan areas remains to be investigated.
3.
For empirical evidence that communities emulate others with respect to the granting of abatements, see Anderson and Wassmer ( 1995). For the first 15 years of the abatement programme, municipalities in the Detroit metropolitan area became increasingly willing to end their spells of non-abatement to emulate their neighbouring communities.
4.
This discussion draws heavily on Ladd ( 1994).
5.
The Act authorizes the Secretary of Housing and Urban Development to designate six urban and three rural empowerment zones, and 65 urban and 30 rural enterprise communities. The goal of the programme is to build communities and empower residents of distressed areas so that they may prosper. The tax incentives include a 20 per cent tax credit covering the first $15 000 of wages and certain types of training that a business provides to

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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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