The Increasing Use of Property Tax Abatement as a Means of Promoting Sub-National Economic Activity in the United States

Abstract

The swift increase in stand-alone property tax abatement programs (SAPTAPS) allowed within the United States (from 30 percent of the states allowing them in 1964 to 70 percent in 2004), the nationwide erosion in property tax base they likely generate, and the wide variety of arguments given both pro and con for the continued existence of these programs are the reasons their use is explored in this paper. The paper first offers evidence on the increasing use of property tax abatement in the United States, and the arguments previously put forth in favor and against the use of this form of economic development incentive. Next, the economic theory indicating why abatement may promote sub-national economic development is summarized. This is followed by a description of the types and prevalence of SAPTAPs currently in the United States, and a summary of the best empirical evidence that exists on the effects of property tax abatements. The conclusion offers my own recommendations in regard to how sub-national decision makers should view the offering of SAPTAPs and policy suggestions for the future of property tax abatement in the United States.

Keywords: Property Tax Evidence, United States, Public Policy, Empirical Evidence

JEL Classification: H71, R53