Impact of Tax Increment Financing on Municipal Employment Growth

Abstract

Increasingly, municipal leaders justify their use of Tax Increment Financing (TIF) by touting its role in improving municipal employment growth. However, empirical studies on TIF have limited themselves to examining the development tool's effect on property values, ignoring its expanding role in municipal efforts to attract jobs. This paper addresses the claims of municipal leaders by examining the impact of TIF adoption on the employment growth rates of Illinois municipalities. The paper looks for both an overall TIF adoption effect and an adoption effect for each of the classifications of development undertaken. Contrary to the claims of TIF proponents, results indicate a lack of an overall TIF adoption effect. However, findings suggest that TIF districts supporting industrial development may increase employment growth rates of adopting municipalities. On the other hand, TIF districts supporting retail development decrease employment growth rates. These results are consistent with businesses within industrial TIF districts, capturing spending that would have occurred outside of the adopting municipality, whereas TIF districts supporting retail establishments shift spending within the municipality to more labor-efficient retailers.