Tax Increment Financing and Business Dynamism

Abstract

Tax Increment Financing (TIF) is one of the most widely used—yet controversial—place-based policy tools to stimulate private investment in underdeveloped and blighted areas. We examine the rollout of TIF legislation, beginning in the 1960s, and find that TIF leads to a significant increase in business creation across several sectors, especially in the non-tradable sector. We also find strong evidence that TIF promotes income growth among underserved communities. Among individuals without a high school diploma, TIF reduces poverty rates by 3 percentage points and increases income by 6%. These effects persist over 20 years. We do not find evidence that TIF affects either displacement of low-income households, or the incomes of high-skill workers. Our evidence offers strong support for TIF policies in promoting economic development and reducing inequality.

Presented by Issac Hacamo Schmid.