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Do Wisconsin Tax Increment Finance Districts Stimulate Growth in Real Estate Values?

Russell Kashian, with Mark Skidmore and David Merriman

December 2007, English

Economic development is one of the central tasks of local government in the United States. In recent years local governments around the country have made wide use of a somewhat obscure and indirect tool called “tax increment finance” (TIF) as a major mechanism to promote real estate development. In this paper we use data on all Wisconsin municipalities with and without tax increment finance (TIF) districts during the period 1990 to 2003 to study the effect of TIF on economic development. We use panel data estimation techniques to regress non-TIF and aggregate property values on variables that measure TIF use and control variables. We also use appropriate techniques to examine the potential endogeniety of TIF use. We find evidence in support of three primary hypotheses: (1) EAV grows faster in TIF than non-TIF portions of the municipality; (2) non-TIF portions of municipalities with a TIF grow more slowly than they would have in the absence of TIF; and (3) TIF has no net effect on aggregate land values within a municipality.