Report authors Daphne A. Kenyon, Adam H. Langley, and Bethany P. Paquin explain that there are three obstacles to successful property tax incentives:
"First, incentives are unlikely to have a significant impact on a firm's profitability since property taxes are a small part of the total costs for most businesses-averaging much less than 1 percent of total costs for the U.S. manufacturing sector. Second, tax breaks are sometimes given to businesses that would have chosen the same location even without the incentives. When this happens, property tax incentives merely deplete the tax base without promoting economic development. Third, widespread use of incentives within a metropolitan area reduces their effectiveness, because when firms can obtain similar tax breaks in most jurisdictions, incentives are less likely to affect business location decisions."
The authors say that strategies that work better for long-term economic development include "...customized job training, labor market intermediaries, and business support services."
The full report is available as a free PDF download.