Panel Paper: The Economic and Fiscal Impacts of Property Tax Abatement in a Large U.S. County

Friday, July 20, 2018
Building 3, Room 207 (ITAM)

*Names in bold indicate Presenter

Robert Wassmer1, Daphne A Kenyon2, Bethany Paquin2 and Adam Langley2, (1)California State University, Sacramento, (2)Lincoln Institute of Land Policy

The heavy reliance by local governments in the United States on the property tax, and the subsequent use of property tax abatements by many of these local governments to promote economic development, has generated much controversy. The core question is whether property tax abatements attract business development or merely deplete the tax base. To investigate this question, we employ a database on the two most important property tax abatement programs for Franklin County, Ohio, one of the largest U.S. counties. These programs are Community Reinvestment Areas (CRAs) and Enterprise Zones (EZs). Using panel-data regression analysis, we find that a one percentage point increase in a school district’s CRA or EZ abatement intensity correlates with: (1) a 1.6 percent increase in the total market value of property in the school district, (2) a 0.9 (0.7) percent decrease in effective residential (non-residential) property tax rates, and (3) a 2.7 percent decrease in a school district’s mill rate. While these are small economic and fiscal impacts, these results are arguably a beneficial outcome since tax incentives have generated enough growth in property values to offset the immediate drop in the tax base from an abatement, and thus avoid a tax shift to non-abated properties. We describe the regulations and oversight for these abatement programs. We posit that these regulations and oversight, which are more stringent than in many other places in the U.S., may be the reason for the beneficial economic and fiscal impacts of these property tax abatements.