Optimal Investment in a Tax Increment Financing District

In this paper we introduce a general model of property tax increment financed redevelopment. The model illustrates how expenditures on public infrastructure and housing induce private capital investment and growth in property values. It can be used to frame the problem of how best to manage a tax increment financing (or TIF) fund to realize redevelopment objectives. The solution to this problem suggests when the use of TIF is appropriate. We present estimates of the model's parameters for a TIF district in Urbana, Illinois, a solution to the fund management problem, and an evaluation of TIF's suitability in this case