1 The Impact of Tax Incentives on Local Real Estate Markets: the Question of Incidence

Research on the impact of property taxes on local real estate markets has a long history in the urban economics literature. However, very few studies have considered this issue in the context of the commercial real estate market or on data from outside the United States. This is surprising as many local and national governments consider property tax exemptions as part of a package of incentives to aid in the regeneration of areas of economic deprivation. A prominent example of this has been Enterprise Zones. However, the impact of such incentives on local real estate markets is often unknown. In this study we use a novel data set, collected by a government agency, of commercial real estate leases. Our data set covers both taxed and tax exempt areas during the operation of the enterprise zone designations in the United Kingdom. This data allows us to investigate the incidence of the local property tax savings for properties located in Enterprise Zones. Our findings show that a large part of the tax savings appears to be captured in higher rents charged by landlords. Key words: tax incidence, property taxes, enterprise zones and commercial real estate leases