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Fees and Firms: An Empirical Examination of the Relationship Between Development Impact Fees and Firms

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Abstract

Over the past few decades, many counties have adopted development impact fees as an alternative to traditional tax funding for infrastructure required to support new development. In a theoretical model of firm entry using fixed costs and increasing returns to scale, additional fees, modeled as an increase in fixed costs, reduces the number of entrants and increases a firm’s size. Using county level data on homogenous, small draw area firms in Florida, the research presented in this paper suggests that fees reduce the number of firms per capita in a jurisdiction. While population and market size are the main drivers of firms’ location decisions, the results presented in this paper suggest that fees may have a negative effect on firm location decisions at the margin. Policy makers concerned about employment and commercial tax base should give pause before implementing a fee system.

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Notes

  1. While Bresnahan and Reiss modeled firm entry and not the number of firms in equilibrium, their model is still instructive for thinking about the number of firms in a more static model.

  2. These firms were chosen for their assumedly small customer draw areas.

  3. More precise conclusions could be drawn with a panel dataset and fee levels rather than a binary variable, however, such data is not consistently available for all the variables over the almost 40 years fees have been in use.

  4. To more confidently address causation a panel analysis consisting of a larger cross section and potentially decades of time series would be needed. However, the cross sectional analysis here is supportive of the theoretical model presented above.

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Authors and Affiliations

  1. University of North Carolina-Wilmington, 601 S. College Rd, Wilmington, NC, 28403-5945, USA

    Adam T. Jones

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  1. Adam T. Jones
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Correspondence to Adam T. Jones.

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Jones, A.T. Fees and Firms: An Empirical Examination of the Relationship Between Development Impact Fees and Firms. Atl Econ J 43, 261–269 (2015). https://doi.org/10.1007/s11293-015-9453-7

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  • DOI: https://doi.org/10.1007/s11293-015-9453-7

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