The Effects of Place-Based Policy: Evidence from Tax Increment Financing

This dissertation examines the effects of tax increment financing (TIF) in Cook County, Illinois as an example of place-based policy (PBP). Its aim is to provide new perspectives and call attention to un(der)explored dimensions in assessing not only TIF but more broadly all types of PBPs. Qualitative case studies and two statistical analyses make up this three-part study and they together illuminate the effects of TIF and its underlying mechanisms. Specifically, I first conduct case studies to demonstrate detailed economic and institutional mechanisms in which TIF districts operate. Second, I measure the dynamic, spillover, and persistent effects of TIF. And, lastly, I examine the distributional implications of TIF and how TIF has performed in reducing spatial inequality in the region. The main takeaways from the analyses are as follows: 1) The effects of TIF appear to be heterogeneous by time and region (i.e., Chicago and non-Chicago municipalities in Cook County); TIF designation is negatively correlated with the number of establishments in Chicago, particularly around 10 years after TIF districts are established, while I find evidence of the positive effects in the non-Chicago municipalities on employment. This may be due to differences in taxing and fiscal structures, less competition, and cannibalization (i.e., poaching businesses from other TIFs). 2) I find evidence of persistent and sustaining effects of TIF after its termination. The presence of the persistent effects indicates that TIF districts may successfully establish positive externalities and that transforming a locality from low-density economic activity to high-density economic activity through PBP(s) could jumpstart a new agglomeration economy. 3) TIF has beneficial effects on the income and well-being of residents, but these positive effects are not substantial enough to catch up with other relatively affluent areas and reduce spatial inequality in the region.