Tax Increment Financing and Education Expenditures: The Case of Iowa

Abstract

This is the first study to directly examine the relationship between tax increment financing (TIF) and education expenditures, using the state of Iowa as a case study. I find that greater use of TIF is associated with reduced education expenditures. I also find little evidence to support the commonly held proposition that school spending increases when TIF districts expire. Finally, the negative price effect of TIF on education spending is increasingly larger for school districts in lower wealth or income groups compared with their counterparts in higher wealth or income groups. The negative, though small, effect of TIF on education spending, coupled with no gain from the often-claimed long-run benefits of TIF, justifies policy measures to protect school districts from TIF.