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Tax Increment Financing and Property Value

An Examination of Business Property Using Panel Data

The University of Georgia, Athens, Georgia

This paper examines the impact of tax increment financing (TIF) on business property value. Using parcel-level data from Milwaukee, Wisconsin, from 1980 to1999, a semilog econometric model is estimated using fixed effects regression. A two-stage estimation process is also used to test and correct for potential self-selection bias and endogeneity associated with TIF implementation. The findings suggest that the provision of public services offered within TIF districts is capitalized into business property value over time. The magnitude of this effect is the largest of all factors considered. The analysis also reveals that self-selection bias is likely associated with TIF implementation. The endogenously determined probability that a property will be placed within a TIF district is positively correlated with the property's value. Finally, the analysis reveals that the impact of TIF might be underestimated in the absence of corrections for self-selection bias and endogeneity.

Key Words: tax increment financing • business property value • capitalization

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