The Fiscal Impact of Local Property Tax Abatement in Indiana

Property tax abatement is widely used by local governments in the U.S. with the goal of attracting and retaining businesses. This analysis examines the efficacy of such abatement using data on Indiana counties from 2002 through 2011. The analysis suggests that local tax abatement tends to be correlated with higher effective tax rates in a county. These correlations exist in the absolute size of abated property relative to the existing assessed value of property taxes and in the frequency of use of tax abatements. In addition, there is not a strong relationship between abatement and the growth of assessed value over time. The implication is that, on average, the use of abatements as a tool for growing a property tax base is not particularly effective. These findings cast doubt on the ability of Indiana's system of property tax abatements to increase the tax base or control property tax rates.