The effect of tax increment financing districts on job creation in Chicago

Abstract

Tax Increment Financing (TIF) districts are the largest economic development program in the City of Chicago allocating nearly $1 billion in tax revenues annually. This paper uses comprehensive data on employment by place of work and place of residency to study if TIF districts see an increase in jobs as a result of designation, and whether the residents in neighborhoods designated as TIF districts see employment benefits from the designation. To account for the endogenous selection of TIF areas, I implement a propensity score matching dynamic difference-in-differences approach exploiting differential timing of TIF designation. I find that TIF designation increases the number of jobs in a selected census block by approximately 15% over 5 years. However, the employment levels of residents living in or around TIF districts shows no increase due to designation. I also find evidence of substantial spillover effects to adjacent blocks, and limited neighborhood compositional changes. These findings suggest that TIF districts can be effective in revitalizing commercial and industrial areas while the ability of TIF to improve outcomes in blighted residential neighborhoods surrounding the district is limited.