The Impact of Property Taxes and Property Tax Classification on Business Activity

We investigate the extent to which Chicago’s unusual system of property taxation, whereby commercial and industrial property is “classified” and assessed at a higher rate in Cook County than in the outer counties, has contributed to the relative decline of business activity in the inner county. We find clear evidence that property tax classification raises business property tax rates. However, we find no relationship between property tax rates and the growth in market value of commercial or industrial property; or the growth in the number of business establishments. We do find strong evidence of an effect of property taxes on growth in employment. We cannot rule out the possibility that property tax classification is partially responsible for Cook County’s relatively slow growth in business activity. However, the preponderance of our evidence leads us to believe that classification is not the root cause of Cook County’s slow growth.