| This research mainly comprises two empirical studies. First in an econometric analysis using statewide city-level data in Indiana, the first-difference model developed by Heckman and Hotz is applied to estimate the effect of property tax abatements (PTAs) over different sectors. The results indicate that a large majority of jobs created by the property tax abatement programs occur in the service sector, not the manufacturing sector. Despite the significant amount of attention focused on the manufacturing sector in discussions surrounding the implementation of property tax abatement programs, the analysis demonstrates that there is no significant contribution to employment in this sector.; A balance between the output effect and the substitution effect may explain the variation in the economic effect of PTAs across different sectors. Even though the output effect of the PTA programs increases demand for labor in the community, a decrease in the cost of capital induces substitution of capital for the relatively more expensive labor. Overall, the net impact of PTAs on the employment of each sector hinges on the balance between the output effect and the substitution effect.; In addition, by applying the dummy variable technique, the analysis finds that the economic effect of PTAs diminishes over time. This finding confirms with the copycat behavior hypothesis proposed by previous scholars. Furthermore, the empirical results suggest that property tax abatements should be used only in the needy areas to maintain the long-term success of this program.; Subsequently in the Indianapolis case study, the empirical evidence suggests that regulating the use of property tax abatement programs is effective in keeping companies and jobs in the underprivileged communities. While this program has been effective in general, there are some concerns raised in the analysis. Firstly, most applicants are current local companies, some of which repeatedly make use of the same existing jobs as a threat in their pursuit for tax breaks. Furthermore, even though needy center cities have dominated the use of property tax abatements in the early years of its adoption, their comparative advantage obtained through this program seems to diminish over the long run. |
