From Tiebout to TIF: Does business vote with its feet

One fundamental argument surrounding the urban economic development policy tax increment financing (TIF) is that TIF is used as an incentive by municipalities to compete against each other for business investment. Based on the theoretical propositions of the Tiebout Hypothesis and Oates' Capitalization Theory, TIF can be viewed as a tool for municipalities to compete against each other. This is accomplished by influencing the locational decisions of business developers and making property within TIF districts more desirable than non-TIF properties. The primary research question for this dissertation is: Does tax increment financing influence the locational decision making process of private business developers?; To address this question, the methodological approach is twofold. First, a qualitative analysis of four firms within Southeastern Wisconsin is analyzed to assess the extent to which TIF is influential over investment decisions made by private development firms. Second, a database containing annual information on all properties within the City of Milwaukee, Wisconsin for the time period 1980--1999 is quantitatively examined to determine the extent to which TIF is capitalized into property values. The findings suggest that tax increment financing does act as an incentive to private business developers, thereby influencing their decision to invest in particular projects resulting in an increase in the valuation of properties located within and surrounding TIF districts. However, the findings also infer that TIF is not the only factor attributable to influencing investment decisions made by private developers.; The implications of these findings are threefold. First, application of the Tiebout Hypothesis to businesses infers that rational decision-making processes concerning mobility are similar for businesses as for individuals, both of which are influential over public services provided at the municipal level of government. Second, public officials and municipal administrators have at their disposal effective tools for proactively reversing the trends of urban city decline toward the augmentation of urban renewal. Third, today's municipal leaders and economic development practitioners must be cautious not to develop an "if you build it, they will come" mind-set with respect to urban revitalization. Such naive attitudes could further threaten the economic vitality of the urban environment.