Taxes and Economic Development

There is a large literature examining the effect of taxes and tax concessions on local economic development, but the last comprehensive review of taxes and economic development was Wasylenko (1997), which mostly examined the location response of firms. After the last major review of the literature, empirical work in this area has sought to address endogeneity concerns that plagued previous studies, resulting in a series of compelling new studies. This paper reviews the empirical literature on tax-based economic development incentives produced since Wasylenko’s 1997 review covering the following areas: property tax (including Tax Increment Financing and Business Improvement Districts), spatially targeted and zone-based tax concessions, firm specific incentives and corporate income taxes. The review focuses on academic studies that employ modern program evaluation or quasi-experimental techniques and primarily U.S. based policies.