Tax Increment Financing (TIF) has become a common economic development
tool throughout the United States. TIF takes the new taxes that a development
generates and directs a portion of them to repay the costs of the project itself.
Missouri is one of many states where TIF is authorized for purposes of combating
blight, engaging in conservation efforts, fostering economic development, or a
combination of those factors.
Supporters of TIF argue that it is a necessary tool for redevelopment in older
communities. Detractors contend that it is used to simply subsidize development,
and that variances in tax systems allow some governments to implement and benefit
from TIF even if its use harms other levels of government.
This study provides an overview of the history and basic structure of TIF. It then
analyzes the basic tax components of a TIF plan and compares how various aspects,
such as tax capture and tax competition, play out in the standard system of TIF. The
study then reviews the economic literature on TIF, and ends with a direct application
of how TIF operates within Missouri.
