Do Industrial Tax Abatements Spur Property Value Growth?

Abstract

Despite ongoing debate regarding the effectiveness of tax abatements, Michigan's Industrial Facilities Tax (IFT) abatement program has been widely and extensively used to boost local economic development. In this article, we estimate the effects of industrial property tax abatements on industrial, residential, and commercial property value growth in the context of regional competition for a panel of 152 communities in the five counties surrounding Detroit from 1983 through 2002. We find that: (1) offering tax abatements yields statistically significant positive impacts on industrial property value growth; (2) the impacts are larger in high tax than in low tax communities; (3) there are positive spillover effects of industrial tax abatements on residential and commercial property value growth; (4) tax abatements offered in competitor communities do not appear to influence own industrial property value growth; and (5) changes in the own as well as competitor property tax rates are important determinants of industrial property value growth. However, the fiscal benefits of tax abatements are quite small as compared with the costs of offering abatements even when spillover benefits to residential and commercial properties are considered. (C) 2015 by the Association for Public Policy Analysis and Management.