Effect of local government taxes and spending on the redevelopment of commercial property

Abstract

We provide the first causal evidence of the effect of taxation and spending on the redevelopment of commercial property. We analyze a unique dataset of local government property tax levies to renew current expense funding for general operating purposes. Our regression discontinuity approach finds cities that vote to renew taxes and spending have more redevelopment of commercial property than cities that cut balanced-budget funding by an average of 21 %. Demolition doubles, and new construction increases an average of 48 %. The results hold for cities in urban areas, service sector-oriented cities, and cities with above-median population growth. We even find that renewing funding for local government services spurs more commercial redevelopment in cities with declining populations, but only in a sample that allows outliers. Firms seem to value local government spending more than cutting taxes.