Implementing Tax Abatements in Michigan: A Study of Best Practices

Abstract

Because the use of tax abatements to foster local economic development is widespread despite uncertainty about their effectiveness, is it possible to allocate abatements in a way that increases the likelihood that tangible benefits will result? This research suggests that few municipalities place conditions on abatements, most never evaluate the performance of firms granted abatements, and abatement requests are seldom or never rejected. The project focuses on the implementation of tax abatements, explores the use of tax abatements over a relatively long time period, and makes explicit policy recommendations for more effective policy implementation. Changes in state enabling legislation targeting abatements to distressed areas and adding requirements for evaluation may produce more effective use of abatements at the local level.

Not Just Another Determinants Piece: Path Dependency and Local Tax Abatements

“…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.…”

Tax delinquency and abandonment: An expanded model with application to industrial and commercial properties

“…This underscores the argument for the need to evaluate the performance of local tax abatements (Sands et al, 2006).…”

Did incentives help municipalities recover from the Great Recession? Evidence from Midwestern cities

“…For example, from 1980 to 2001, four out of the top five communities in Michigan in terms of total abatements granted were located in the Grand Rapids area (Sands, Reese, & Khan, 2006). These dummy variables are intended to capture variation in economic conditions and trajectories of recovery from the Great Recession as well as other unobserved characteristics across the multiple metropolitan regions within these two states.…”

“…12 The Grand Rapids metropolitan area may also host region-specific effects. For example, from 1980 to 2001, four out of the top five communities in Michigan in terms of total abatements granted were located in the Grand Rapids area (Sands, Reese, & Khan, 2006). The active use of incentives could reflect a distinct institutional and social fabric in Grand Rapids.…”