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

8. Incentives, firm location decisions and regional economic performance

William E Fox and Matthew N. Murray


INTRODUCTION

Many communities seek the siting of large branch plants based on faith that the regional economy will be stimulated by the siting. 1 Communities often make significant tax concessions and provide substantial other incentives to woo plants because of expected jobs and income. Economic analyses of expected effects from plant entry are sometimes performed, either to assist in setting the value of inducements during the recruitment process or to determine the magnitude of impacts after the actual siting decision. These studies are almost always based solely on the effects of the single firm, and possibly its suppliers, 2 with no consideration to potentially offsetting dynamic effects in the region.

Firm sitings are expected to increase economic activity because of the anticipated movement of capital and labour demand from other regions into the area. However, in an analysis of the Nissan siting, Fox ( 1990) observed there were no signs that either the county or the broader area in which Nissan located showed greater growth after the location than before. One possible explanation for the counter-intuitive finding is that the expectation of faster growth ignores the simultaneity that exists between the siting of a major branch plant and the broader set of siting and contraction/expansion decisions. For example, interdependencies are likely to exist between a major plant siting and overall capital and labour flows of other firms, because the factors affecting expected profits and amenities are altered by the siting decisions of large visible firms. For example, Fox and Murray ( 1990) describe new start-ups and branch firms making siting decisions by maximizing over the package of expected profitability and amenities available at alternative sites. The siting of a major plant may significantly reduce any excess supply of labour and may bid up wages, causing other firms to locate elsewhere. The chance that other firms see the area as the best location option is reduced to the extent that higher wage rates and less available labour supply

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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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