The Impact of Tax Increment Financing on Business Entries and Exits in Iowa

Abstract

One of the economic development objectives of tax increment financing (TIF) is to increase business entries and decrease exits in designated areas. The authors use data on sales and use tax permit registrations in Iowa for two of the largest counties, Johnson and Polk, during the period 1990 through 2017 to estimate the effects of TIF on business establishments, entries, and exits. Using an event-study design, the analysis of pooled data suggests that TIF has no significant effect on total establishments or business entries, and significantly reduces business exits. TIF seems to increase establishments in Johnson County and to reduce business exits in Polk County. Of the industries examined, retail stands to benefit the most from TIF. The authors also find limited evidence of spatial spillover effects of TIF.