Tax Increment Financing: A Propensity Score Approach

Abstract

This study examines the effect of tax increment financing (TIF) on economic growth in Indiana. TIF areas are designated with the intent of spurring economic development characterized primarily by growth in assessed value and in employment within the TIF area. We examined property-level data from 2004 to 2013 and found that the average property in a TIF area may display higher assessed values than the average property in a similarly situated non-TIF area. While both TIF and non-TIF properties tended to grow over time, the average property in a TIF area may grow by slightly more than its non-TIF counterpart. We also found that TIF does not statistically significantly affect employment or employment growth over time. While there does not appear to be a multiplicative effect of the presence of enterprise zones and TIF on employment, TIF works with property tax abatements in incentivizing job creation. Our analysis of the effect of TIF on economic development outcomes informs policy makers of the likelihood that a given area will adopt TIF in the context of the “but-for” question.