Professor Michelle Layser presented her working paper When, Where, and How to Design Community-Oriented Place-Based Tax Incentives at Indiana last week as part of its Tax Policy Colloquium Series.
The paper abstract follows:
Place-based tax incentives are frequently used by federal, state, and local governments to encourage investment in low-income areas. The newest federal incentive, the Opportunity Zones tax law, has been criticized for lacking safeguards for low-income communities. However, Opportunity Zones are just the latest chapter in a long history of place-based tax incentives that lack any clear objective to benefit residents of targeted communities. Meanwhile, no standard exists to describe the ideal community-oriented place-based tax incentive. This Article provides that baseline by explaining when, where, and how to design community-oriented place-based tax incentives. It argues that place-based tax incentives should be designed to reduce the underlying, geographic causes of neighborhood inequality.
Accordingly, this Article presents a two-step approach to tax incentive design. The first step draws on geography, sociology, and communication theories to determine when place-based tax incentives can be used to reduce spatial inequities. Using Geospatial Information System (GIS) mapping methods, it demonstrates how lawmakers can use public data to determine where people are likely to experience spatial disadvantage. The second step draws on tax theory to show how place-based tax incentives can maximize programmatic benefits and achieve the desired distributive outcomes.
In addition to establishing an ideal baseline against which existing and proposed tax incentives can be evaluated, the analysis yields several new insights about place-based tax incentive design. First, the appropriate targets of place-based tax incentives are highly place-specific, suggesting that collaboration between federal, state and local governments may be necessary to administer the tax incentives effectively. Second, since the source of spatial inequities varies in different places, there is no one-size-fits-all design to produce the desired programmatic benefits. Third, the apparent inability of many place-based tax incentives to benefit low-income communities may be a consequence of their failure to target areas where residents experience place-based inequality, as well as their failure to promote the ideal investments.
The full paper is available for download at SSRN.