Impact of Property Tax Abatement on Employment Growth

Abstract

Property tax abatement incentives, used by 70% (35 states) of the states in the United States, redirect property tax revenue from the local community to firms in hopes that inducing these firms to relocate will bring economic development benefits to the local community. However, if unsuccessful, property tax abatement incentives might uniquely concentrate the costs of a failed economic incentive strategy within a single community. Using a sample of 45 industries in 43 cities, the authors examined the employment impact of property tax abatement incentives. Property tax abatement incentives were positively associated with employment growth, but only in the early years when the abatement policies were still new. The authors also explored heterogeneity in these results among industries. Property tax abatements targeting service industries, which are less likely to benefit from automation improvements, were associated with larger employment gains.