The impact of tax increment financing on property value

Abstract

Purpose

Tax increment financing (TIF) has been adopted widely by municipalities to promote local economic development. This study aims to examine the effect of TIF adoption on property values at the parcel level in Indiana from 2009 to 2016.

Design/methodology/approach

Concerns of TIF adoption endogeneity are addressed by a two-stage estimation process using urban population ratio and unemployment rates as instruments.

Findings

In addition to finding influential socioeconomic and demographic factors, the results suggest that parcels located within TIF districts were sold more than parcels outside of TIF districts by approximately $5,000. Such premium is mainly picked up by the positive effect on commercial and agricultural parcels, which outweighs the negative TIF impact on residential types.

Originality/value

Arm’s length transaction data on property value are used to eliminate the subjective assessment bias, potential calculation errors during the evaluation process and econometric issues caused by using the assessed value.

Citation

He, C. and Azizi, S. (2020), "The impact of tax increment financing on property value", International Journal of Housing Markets and Analysis, Vol. 13 No. 5, pp. 689-711. https://doi.org/10.1108/IJHMA-05-2019-0049