The Effects of Tax Increment Financing on Local Income and Income Surtax Base: Evidence From Iowa School Districts

Abstract

While numerous studies have examined tax increment financing (TIF), most focus on its impact on job creation and property value growth. This paper addresses a key gap in the literature by investigating the effect of TIF on local income. Utilizing a unique dataset on income measures for Iowa school districts from 2003 to 2018, we employ two-way-fixed-effects and event study designs to estimate the effects of TIF on income, supported by robustness checks including Goodman-Bacon decomposition and Synthetic Difference-in-Differences. Our findings reveal that TIF significantly increases district-level income, as measured by total adjusted gross income, taxable income, and the income base for school districts' optional income surtax. However, these income-enhancing effects are not equally distributed. Notably, school districts with weaker tax bases and higher shares of students in poverty benefit less from TIF.