The Nature of Property Tax Abatement Awards

Abstract

In the past twenty years state and local governments have taken a more active role in influencing the direction of economic development. Public officials have attempted, through the use of fiscal incentives, to spur private investment. Unfortunately, near universal use of these incentives has not been accompanied by more sophisticated policies. In general, awards are made whenever requested and too little attention is paid to the impact upon recipient behavior. This article examines the use of one specific incentive: property tax abatement. Why abatements are virtually always awarded when requested is considered, as is the question of why local officials fail to differentiate between applicant firms despite ample reasons for doing so. Although an invariant award obviates a potential set of organizational and political problems, it does so at the cost of program efficiency. With this in mind, a number of program reforms are suggested.