The Effects of Tax Increment Financing on Local Income and Income Surtax Base: Evidence From Iowa School Districts

While numerous studies have examined tax increment financing (TIF), most focus on its impact on job creation and property value growth. This paper addresses a key gap in the literature by investigating the effect of TIF on local income. Utilizing a unique dataset on income measures for Iowa school districts from 2003 to 2018, we employ two‐way‐fixed‐effects and event study designs to estimate the effects of TIF on income, supported by robustness checks including Goodman‐Bacon decomposition and Synthetic Difference‐in‐Differences. Our findings reveal that TIF significantly increases district‐level income, as measured by total adjusted gross income, taxable income, and the income base for school districts' optional income surtax. However, these income‐enhancing effects are not equally distributed. Notably, school districts with weaker tax bases and higher shares of students in poverty benefit less from TIF.