A study on relationship between local utilization of manufacturing property tax abatement and local conditions in Michigan cities.

摘要

This dissertation focuses on an evaluation of the property tax abatement system as a planning tool, one of the most widely practiced tax instruments designed to stimulate economic development and productive land use. These tax abatements are especially prevalent in large central cities and some suburban communities that surround them. Local officials hope to reverse their city's relative fiscal decline by exerting a measurable influence on a firm's location. Tax abatements reduce the price of land and capital for industry and thereby make investment opportunities in urban areas more attractive.;The purpose of this study is to discover the relationships between the use of property tax abatements and local fiscal and economic conditions. Given significant variation among cities in levels of economic development, it is reasonable to examine the use of tax abatement across a wide group of municipalities. Previous studies examining the tax abatement policy and its effectiveness have offered little discussion about why communities choose certain economic development policies over others and at what levels. In this study, I examine the relationship between local utilization of property tax abatement and local fiscal and economic conditions in Michigan cities. I also analyze the relationship of such factors as governmental structure, spatial variation, local policy, and social and structure conditions on local utilization of property tax abatement. This study uses a multiple regression model to determine how local fiscal and economic performance levels relate to the utilization of property tax abatements in Michigan cities. A panel data set is used because a single cross-section of Michigan cities results in too small of a data set. The panel consists of four pooled cross sections beginning in 1977 and continuing in five-year increments up to 1992.;In the model, the dependent variable is the degree of local utilization of property tax abatement, which is measured in two ways: (1) per capita amount of cumulative real market value of manufacturing property tax base abated away (KTAP) and (2) numbers of manufacturing property tax abatement issued (TANO). Independent variables include local fiscal condition variables, local economic condition variables, and other environmental variables surrounding local governments.;The results of the empirical analysis show that communities with the greater revenue and tax base tend to use more the property tax abatement program whereas tax burden and reliance on property tax, which represent fiscal distress, is negatively related to the local utilization of property tax abatement. While communities with higher rates of median income change tend to grant property tax abatement more, cities with cycling as well as structural unemployment have difficulty utilizing the property tax abatement program. These empirical results imply that property tax abatement policy can create locational distortions and have undesirable equity consequences. Thus, it needs to control the property tax abatement policy to insure that local governments only offer abatements that are necessary to overcome local fiscal and economic needs.