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Tax Increment Financing: Its Effect on Local Government Finances.

Kriz, Kenneth A.

Tax increment financing (TIF) is a widely used economic development and urban redevelopment tool. However, practitioners and researchers have struggled with the question of how TIF affects local government finances. Two theories prevail. The pure capture theory views TIF as simply a means to redirect public resources to subsidize development that would likely occur without the use of public subsidy. The pure attribution theory sees TIF as a necessary incentive to lure businesses to areas that would likely never be developed, at least for a period of several years. The author of this article takes a different approach. Using a probability-based analysis technique called Monte Carlo simulation, Kriz investigates the probabilities of a positive financial outcome from TIF. Based on his analysis, Kriz concludes that local governments face significant financial risks when they implement TIF projects, but that under some circumstances, they can potentially reap financial rewards.

CURA Reporter
Publication date: 
Minneapolis: Center for Urban and Regional Affairs, University of Minnesota.
Supported in part through a New Initiative grant from CURA.
33 (2): 1-7.
Online availability
Download from CURA: 
CURA call number: 
Reporter 33 (2)

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