Not Just Another Determinants Piece: Path Dependency and Local Tax Abatements

Although there is a large body of research attempting to identify the correlates of tax abatements, the question of why cities abate taxes at widely differing rates—or indeed, not at all despite state enabling legislation allowing them—has never been completely answered. Based on an examination of tax abatement data representing the history of abatements in Michigan, the article concludes that abatement patterns can be best understood when past abatement behaviors and the nature of the local employment base are included in the analysis. In the case of the number of abatements granted, it appears that both these forces—along with the general economy, governmental structural and process factors—are important in understanding abatement behavior. When the total value of abatements is considered, industrial mix appears most critical. Once municipalities start giving tax abatements they continue to do so. And, having concentrations of transportation‐related industries and food/consumer products are traits that appear to lead to that initial push for abatements.