|
Article Excerpt
Every academic probably has a conference presentation horror story where an early effort at research met with a very critical discussant. For this author the experience ended with a derisive dismissal of the nascent scholarly work as being "just yet another determinants piece." Admittedly there is a large body of research, fast becoming dated, attempting to identify the correlates of economic development policy generally, and tax abatements in particular. Yet, the question of why cities abate taxes at widely differing rates--or indeed, not at all despite state enabling legislation allowing them--has never been completely answered. This article takes a look back at this work and posits alternative, although related, hypotheses that may well explain to a large extent variation in local use of tax abatements.
The extant literature has considered a host of factors that potentially affect economic development policy choices by local governments. Such research has accounted for inconsistent but generally low amounts of variation in development policy (Green & Fleischmann, 1991; Reese, 1997; Reese & Rosenfeld, 2002). What appears to be missing from these analyses are several very simple variables or concepts. First, past abatement practices are very likely to affect future abatements. In other words, tax abatement behavior is strongly path dependent. Second, the abatement process does not typically begin with local officials seeking a firm to which to offer an abatement. Rather, firms identify attractive locations and request abatements, which are then almost uniformly granted (Reese, 1997; Sands, Reese, & Kahn, 2006). Further, firms knowledgeable about abatements will not be randomly distributed, yielding high levels of recidivism by firms requesting abatements. It is also likely that individual firms within the same industry will model the behavior of competitors who have previously benefited from abatements. Thus, cities that have high concentrations of firms in particular industries may receive more requests for abatements and correspondingly higher abatement levels. These variables--the nature of local industries and historic abatement practices--have not been fully explored as alternative explanations for local tax abatement policy.
Michigan Public Act 198 of 1974 permits municipalities wide discretion to abate industrial property taxes, which they do at some of the highest levels in the nation (Reese & Fasenfest, 1996). More than 15,000 Industrial Facilities Tax Abatements were granted between 1974 and 1998. Because of its widespread availability and use, PA 198 constitutes an effort to increase the state's competitiveness rather than target specific distressed communities. Most of Michigan's local governments are eligible to participate and about one-third have granted industrial tax abatements (Sands & Zalmezak, 2001). This widespread use and lack of targeting allows for a comprehensive assessment of the correlates of tax abatements.
The Determinants Literature
The determinants literature has employed an array of independent variables to explain development policies, including economic or fiscal forces, governmental structure, resources and decision-making processes, and demographics (Wolman, 1996). Of these, fiscal health has been a central focus of efforts to explain development policy although differing findings have resulted. Some research suggests that more prosperous cities use economic development incentives to a greater degree than less prosperous cities, with the rich getting richer (Brierly, 1986; Green, 1995; Reese, 1991; Rubin, 1988; Schneider, 1986). Other authors have found the reverse to be true: cities experiencing high levels of economic stress may be driven to offer incentives to improve their economic position (Byrnes, Marvel, & Sridhar, 1999; Clarke & Gaile, 1998; Feiock, 1992; Fleischmann, Green, & Kwong, 1992; Reese, 1992; Rubin, 1986; Rubin & Rubin, 1987; Sharp, 1991).
Local resources and the nature and level of professionalism among economic development decision makers have also been used to try to explain local development policies. For example, it appears that cities that are fiscally healthy have greater resources to devote to economic development and are thus more likely to engage in systematic analyses in planning and evaluation that lead to increased development efforts (Ohren & Reese, 1996; Reese, 1997). Other research suggests that cities with more professionalized economic development programs or greater administrative capacity engage in more development efforts (Fleischmann et al., 1992; Pelissero & Fasenfest, 1989; Reese, 1997; Rubin & Rubin, 1987).
Governmental structure appears to play a role in local economic development policy and policymaking, although these findings are also somewhat contradictory. Both "reformed" and "unreformed" structures seem predisposed to offer incentives (Feiock, 1989; Reese, 1997). Mayoral cities have been found to be more innovative in the use of federal economic development dollars (Clarke & Gaile, 1998) and centralization of executive power appears to increase the use of tax abatements in particular (Feiock & Clingermaym, 1986; Sharp, 1991). It has been argued that the combination of ballot box rewards and centralized power permits a greater focus on economic development policy and a strong chief executive may be the type of policy entrepreneur necessary to build coalitions and broker deals (Feiock & Clingermayer, 1986; Pagano & Bowman, 1995; Schneider & Teske, 1993). Other studies, however, have found no relationship between mayor systems and the number of incentives employed (Fleischmann et al., 1992), or indeed, no relationship between governmental structure and development policy at all (Donovan, 1993; Green & Fleischmann, 1991).
Demographic variables also seem to affect local economic development policy. Larger cities have been found to be more active in economic development (Feiock, 1992; Green, 1995; Green & Fleischmann, 1991) and older cities appear more aggressive in their strategies. Citizen attitudes have also been explored; local pressure to increase jobs increases development activity (Green, 1995), but where economic development policies are more controversial, less policy activity appears to result (Donovan, 1993). Finally, research has also explored the interactions between the public and private sectors that precede incentive decisions, including models of local decision making under uncertain conditions (Wolkoff, 1985), and more recently the interplay of market conditions, popular control, and government systems (Kantor & Savitch, 1993).
Despite using similar "determinants," research findings have been mixed,...
|
