Incidence of development impact fees: Theory and evidence

This dissertation investigates the incidence of development impact fees from both a theoretical and empirical perspective. A model of two communities with existing immobile residents and open land for new residents is developed. New residents may choose to live in either community and do so to maximize utility. The Pareto efficient and competitive outcomes are characterized and conditions for an efficient outcome under competition are established. The properties of the model are then developed under a competitive system where new infrastructure is financed by a property tax on all residents. Model parameters such as the level of infrastructure, the level of amenity, the total number of new residents in the system, and income are varied and the effect on utility is analyzed. One community then chooses various levels of an impact fee as a substitute for property tax finance and the welfare effects of this change in finance mechanism are analyzed. Finally, both communities match impact fees and the welfare effects of this interaction are analyzed. It is found that the dominant welfare maximizing strategy for existing residents of any community is switch from property tax finance for new infrastructure to complete impact fee finance. An empirical investigation of the incidence of impact fees using a large data set from northern El Paso County is analyzed in a property tax capitalization framework. Various econometric models are employed to test the hypothesis of positive impact fee incidence. The empirical models generally support previous research indicating positive incidence.