Layser: Place-Based Tax Incentives

In How Place-Based Tax Incentives Can Reduce Geographic Inequality, Michelle D. Layser (Illinois Law) argues that despite significant investment in and attention to tax incentives billed as addressing geographic inequality, “‘no standard exists to describe the ideal place-based incentive, making evaluation of these programs nearly impossible.”

Layser then sets out to address how, and when, such place-based incentives should be designed.

As a threshold matter, Layser distinguishes place-based policies from people-based approaches. Specifically, she defines place-based tax policies as any provision that is “spatially differentiated” or, more specifically, “used to drive investment to low-income areas” (as areas). Current examples featured in Layser’s work include New Markets Tax Credits (NMTC) and Opportunity Zones.

Layser argues that successful place-based tax incentives need to be more carefully tailored to be effective, and there is no one-size-fits all solution for struggling geographies. Layser outlines a two-step approach for more successful place-based policy design that includes (1) more careful and nuanced indentificiation of which places actually suffer from geographic inequality and then (2) desiging incentives more particularly “for the benefit of existing communities, while minimizing risk of displacement.”

Focusing first on identifying when an area would qualify as suffering from geographic inequality, in need of a place-based response, as opposed to mere a confluene of low-income residents, who may benefit from people-based responses, Layswer identifies three features or types of geographic inequality. First, Layser identifies places that suffer “spatial mismatch,” such as a divergance between “immobile residents’ skill levels and the types of job opportunities available where they live.” Second, Layser identifies “systematic abadonment of property” or other widespread disinvestment as a type of geographic inequality, and finally, Layser focuses on weak community infrastrucutre.

With this typology in mind, Layser then outlines specific responses or subsidies that may more directly address these geographic factors. Specifically, Layser suggests that preferred responses should focus, in Layser’s view, on “job creation, development, or investment in community assets” to remedy these disparities.

Place-Based Tax Incentives supplies a “standard against which all improvement to existing law can be measured” and while the article focuses on geographic inequality at the intra-urban level, the discussion provides important considerations when designing policy solutions for rural or suburban areas as well.

For anyone wanting more background, Layser also discusses this work in a compelling episode of the Densely Speaking podcast, hosted by Greg Shill (Iowa Law, also featured here) and Jeff Lin (Federal Reserve Bank Philadelphia).