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Can Tax Increment Financing (TIF) Reverse Urban Decline?

Rachel N. Weber

June 2003, English

To counteract physical decline, local governments have increasingly relied on a redevelopment tool called Tax Increment Financing (TIF). TIF allows municipalities to designate an area for improvement and then earmark any future growth in tax revenues from the area to pay for any economic development expenditures made there. The use of TIF is controversial primarily because of differing perceptions about its impact on property values. If TIF is responsible for property value increases, this tool may be a relatively inexpensive way to increase local wealth and grow the tax base, reduce property abandonment, and make inner city areas more attractive to private investors. If it is not, then this mechanism becomes a way of channeling resources away from the other functions of local government (such as public education) to subsidize development that might have taken place without its use. After describing the mechanics of TIF, the author explains why municipal use of incentives like TIF would or would not raise property values independent of other changes taking place within local land markets. She discusses research that provides empirical evidence to support both sides of the debate and suggests policy reforms that could encourage its more effective use in practice.


Economic Development, Local Government, Planning, Property Taxation, Public Finance, Value Capture