Article first published online:
Laura A. Reese, Professor, Political Science and Director of the Global Urban Studies Program (GUSP), Michigan State University; Mark Skidmore, Professor, Economics, Michigan State University and Dr. Sung Hoon Kang, Associate Research Fellow, the Korea Institute of Public Finance
What was the genesis of the idea for your research/paper?
In Michigan, the populations and economies of cities such as Detroit have been in decline for many years, which has led to increased local government fiscal pressures. In response the state authorizes local governments to use of variety of different types of fiscal incentives such as tax abatements. While there are several studies that evaluate the effects of tax abatements on economic development in Michigan, the role of tax competition is typically not considered. My co-authors, Mark Skidmore, Laura Reese, and I believe that the relative position of a community in a regional context is important, and so we decided to explore the effects of tax abatements on property value growth using spatial techniques to explicitly model the decisions of "competitor" communities to use tax abatements.
What is the main conclusion that becomes evident from your research? (Or, what is your main takeaway?)
Our main conclusion is that tax abatements tend to increase industrial property value growth by improving the relative competitive position in the context of a regional economy; however, tax abatements are not cost effective in terms of benefits relative to taxes forgone. This result may stem from the lack of targeting.
What are some of the more interesting or surprising findings/conclusions did you find in the process of bringing this together?
One of the interesting findings is that the costs to local government of offering a tax abatement are far higher than the benefits; the tax abatement program tends be a very expensive tool for stimulating a local economy. Our findings suggest that to make such programs more effective, state guidelines regarding use of tax abatements should be refined with improved targeting to communities with relatively high property taxes and slumping economies.
Laura A. Reese is Professor of Political Science and Director of the Global Urban Studies Program (GUSP) at Michigan State University. She is the Editor in Chief of the Journal of Urban Affairs and is editor of the Global Urban Book Series for Ashgate Publications. Dr. Reese’s main research and teaching areas are in urban politics and public policy, economic development, and local governance and management in Canada and the US. She has written ten books and over 100 articles and book chapters in these areas as well as public personnel administration focusing on the implementation of sexual harassment policy.
Her recent books include: Money for Nothing: Industrial Tax Abatements and Economic Development (with Gary Sands) 2012, Lanham, MD: Lexington Books. Comparative Civic Culture (with Raymond Rosenfeld) 2012, London: Ashgate Publications, and Reinventing Civil Society: The Emerging Role of Faith-Based Organizations in America (with Richard Hula and Cynthia Jackson-Elmoore), 2011, Armonk, NY: M.E. Sharpe.
Mark Skidmore is professor of economics at Michigan State University, where he holds the Morris Chair in State and Local Government Finance and Policy. He currently serves as Co-editor of the Journal of Urban Affairs and is a Visiting Fellow at the Lincoln Institute of Land Policy. Professor Skidmore has expertise in public finance and urban/regional economics.
Current interests include state and local government tax policy, intergovernmental relations, the interrelationship between public sector decisions and economic activity, and the economics of natural disasters.
His research has appeared in many professional journals and has been cited in prominent news outlets such as the BBC, Boston Globe, CNNMoney, Economist, Forbes, MSNBC, Newsweek, New Yorker, New York Times, PBS News Hour, Reuters, and the Washington Post.
Dr. Sung Hoon Kang is Associate Research Fellow at the Korea Institute of Public Finance. His research has been focusing on the tax competition effects on property value growth. He is also interested in vertical competition between governments at different levels.
His area of interest includes local public finance and urban and regional economics.