IDEAS home Printed from https://ideas.repec.org/p/ces/ceswps/_3899.html
   My bibliography  Save this paper

The Effects of Changes in Property Tax Rates and School Spending on Residential and Business Property Value Growth

Author

Listed:
  • Sung Kang
  • Laura Reese
  • Mark Skidmore

Abstract

In this paper, we examine the effects of changes in property tax rates and school spending on residential and business property value growth in southeast Michigan. We use panel data for 152 communities in the five counties surrounding Detroit between the years 1983 and 2002, a period during which state government mandated major changes to school finance. Using the mandated changes to identify causality, we find that: 1) residential property values are more responsive to school spending changes than property tax rate changes; 2) business property values are more responsive to tax rate changes than school spending changes, and 3) business property values are more sensitive to changes in tax rates as compared to residential property. We also examine tax competition effects on property value growth, showing that tax competition plays an important role in property value growth in the southeast Michigan region.

Suggested Citation

  • Sung Kang & Laura Reese & Mark Skidmore, 2012. "The Effects of Changes in Property Tax Rates and School Spending on Residential and Business Property Value Growth," CESifo Working Paper Series 3899, CESifo.
    • Handle: RePEc:ces:ceswps:_3899
    as

    Download full text from publisher

    File URL: https://www.cesifo.org/DocDL/cesifo1_wp3899.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Charles M. Tiebout, 1956. "A Pure Theory of Local Expenditures," Journal of Political Economy, University of Chicago Press, vol. 64, pages 416-416.
    2. Timothy J. Bartik, 2010. "Small Business Start-Ups in the United States: Estimates of the Effects of Characteristics of States," Book chapters authored by Upjohn Institute researchers, in: Zolton Acs (ed.),Entrepreneurship and regional Development, pages 155-169, W.E. Upjohn Institute for Employment Research.
    3. Hamilton, Bruce W, 1976. "Capitalization of Intrajurisdictional Differences in Local Tax Prices," American Economic Review, American Economic Association, vol. 66(5), pages 743-753, December.
    4. George R. Zodrow, 2019. "The Property Tax as a Capital Tax: A Room with Three Views," World Scientific Book Chapters, in: George R Zodrow (ed.), TAXATION IN THEORY AND PRACTICE Selected Essays of George R. Zodrow, chapter 15, pages 461-487, World Scientific Publishing Co. Pte. Ltd..
    5. Epple, Dennis, 1987. "The Economics of Zoning Laws: A Property Rights Approach to American Land Use Controls. By William A. Fischel (Baltimore: Johns Hopkins University Press, 1985. 372 p. $35.00)," American Political Science Review, Cambridge University Press, vol. 81(2), pages 684-685, June.
    6. Wildasin, David E., 1989. "Interjurisdictional capital mobility: Fiscal externality and a corrective subsidy," Journal of Urban Economics, Elsevier, vol. 25(2), pages 193-212, March.
    7. Andrew Haughwout & Robert Inman & Steven Craig & Thomas Luce, 2004. "Local Revenue Hills: Evidence from Four U.S. Cities," The Review of Economics and Statistics, MIT Press, vol. 86(2), pages 570-585, May.
    8. Oates, Wallace E, 1973. "The Effects of Property Taxes and Local Public Spending on Property Values: A Reply and Yet Further Results," Journal of Political Economy, University of Chicago Press, vol. 81(4), pages 1004-1008, July-Aug..
    9. Brueckner, Jan K., 1982. "A test for allocative efficiency in the local public sector," Journal of Public Economics, Elsevier, vol. 19(3), pages 311-331, December.
    10. Papke, Leslie E., 1991. "Interstate business tax differentials and new firm location : Evidence from panel data," Journal of Public Economics, Elsevier, vol. 45(1), pages 47-68, June.
    11. Brueckner, Jan K., 1979. "Property values, local public expenditure and economic efficiency," Journal of Public Economics, Elsevier, vol. 11(2), pages 223-245, March.
    12. Mieszkowski, Peter & Zodrow, George R, 1989. "Taxation and the Tiebout Model: The Differential Effects of Head Taxes, Taxes on Land Rents, and Property Taxes," Journal of Economic Literature, American Economic Association, vol. 27(3), pages 1098-1146, September.
    13. Christopher F Baum & Mark E. Schaffer & Steven Stillman, 2007. "Enhanced routines for instrumental variables/GMM estimation and testing," Boston College Working Papers in Economics 667, Boston College Department of Economics, revised 05 Sep 2007.
    14. Zodrow, George R., 2001. "The Property Tax as a Capital Tax: A Room with Three Views," National Tax Journal, National Tax Association, vol. 54(n. 1), pages 139-56, March.
    15. Craig Brett & Joris Pinkse, 2000. "The determinants of municipal tax rates in British Columbia," Canadian Journal of Economics, Canadian Economics Association, vol. 33(3), pages 695-714, August.
    16. Skidmore, Mark & Ballard, Charles L. & Hodge, Timothy R., 2010. "Property Value Assessment Growth Limits and Redistribution of Property Tax Payments: Evidence From Michigan," National Tax Journal, National Tax Association;National Tax Journal, vol. 63(3), pages 509-537, September.
    17. Laura A. Reese & Minting Ye, 2011. "Policy Versus Place Luck: Achieving Local Economic Prosperity," Economic Development Quarterly, , vol. 25(3), pages 221-236, August.
    18. Wellisch,Dietmar, 2000. "Theory of Public Finance in a Federal State," Cambridge Books, Cambridge University Press, number 9780521630351.
    19. Jeffrey M Wooldridge, 2010. "Econometric Analysis of Cross Section and Panel Data," MIT Press Books, The MIT Press, edition 2, volume 1, number 0262232588, December.
    20. McGuire, Therese J., 1985. "Are local property taxes important in the intrametropolitan location decisions of firms? An empirical analysis of the Minneapolis-St. Paul metropolitan area," Journal of Urban Economics, Elsevier, vol. 18(2), pages 226-234, September.
    21. Skidmore, Mark & Reese, Laura & Kang, Sung Hoon, 2012. "Regional analysis of property taxation, education finance reform, and property value growth," Regional Science and Urban Economics, Elsevier, vol. 42(1-2), pages 351-363.
    22. Charney, Alberta H., 1983. "Intraurban manufacturing location decisions and local tax differentials," Journal of Urban Economics, Elsevier, vol. 14(2), pages 184-205, September.
    23. Timothy J. Bartik, 1991. "Who Benefits from State and Local Economic Development Policies?," Books from Upjohn Press, W.E. Upjohn Institute for Employment Research, number wbsle, August.
    24. Douglas Staiger & James H. Stock, 1997. "Instrumental Variables Regression with Weak Instruments," Econometrica, Econometric Society, vol. 65(3), pages 557-586, May.
    25. Michael J. Wasylenko, 1980. "Evidence of Fiscal Differentials and Intrametropolitan Firm Relocation," Land Economics, University of Wisconsin Press, vol. 56(3), pages 339-349.
    26. Bruce W. Hamilton, 1975. "Zoning and Property Taxation in a System of Local Governments," Urban Studies, Urban Studies Journal Limited, vol. 12(2), pages 205-211, June.
    27. Thomas F. Luce JR, 1994. "Local Taxes, Public Services, and the Intrametropolitan Location of Firms and Households," Public Finance Review, , vol. 22(2), pages 139-167, April.
    28. Oates, Wallace E, 1969. "The Effects of Property Taxes and Local Public Spending on Property Values: An Empirical Study of Tax Capitalization and the Tiebout Hypothesis," Journal of Political Economy, University of Chicago Press, vol. 77(6), pages 957-971, Nov./Dec..
    29. Bradbury, Katharine L. & Mayer, Christopher J. & Case, Karl E., 2001. "Property tax limits, local fiscal behavior, and property values: evidence from Massachusetts under Proposition," Journal of Public Economics, Elsevier, vol. 80(2), pages 287-311, May.
    30. Christopher F Baum & Mark E. Schaffer & Steven Stillman, 2007. "Enhanced routines for instrumental variables/generalized method of moments estimation and testing," Stata Journal, StataCorp LP, vol. 7(4), pages 465-506, December.
    31. Hoyt, William H., 1991. "Property taxation, Nash equilibrium, and market power," Journal of Urban Economics, Elsevier, vol. 30(1), pages 123-131, July.
    32. Mieszkowski, Peter, 1972. "The property tax: An excise tax or a profits tax?," Journal of Public Economics, Elsevier, vol. 1(1), pages 73-96, April.
    33. George R. Zodrow & Peter Mieszkowski, 2019. "Pigou, Tiebout, Property Taxation, and the Underprovision of Local Public Goods," World Scientific Book Chapters, in: George R Zodrow (ed.), TAXATION IN THEORY AND PRACTICE Selected Essays of George R. Zodrow, chapter 17, pages 525-542, World Scientific Publishing Co. Pte. Ltd..
    34. Ross, Stephen & Yinger, John, 1999. "Sorting and voting: A review of the literature on urban public finance," Handbook of Regional and Urban Economics, in: P. C. Cheshire & E. S. Mills (ed.), Handbook of Regional and Urban Economics, edition 1, volume 3, chapter 47, pages 2001-2060, Elsevier.
    35. Oded Palmon & Baron A. Smith, 1998. "New Evidence on Property Tax Capitalization," Journal of Political Economy, University of Chicago Press, vol. 106(5), pages 1099-1128, October.
    36. Pollakowski, Henry O, 1973. "The Effects of Property Taxes and Local Public Spending on Property Values: A Comment and Further Results," Journal of Political Economy, University of Chicago Press, vol. 81(4), pages 994-1003, July-Aug..
    37. Krelove, R., 1993. "The persistence and inefficiency of property tax finance of local public expenditures," Journal of Public Economics, Elsevier, vol. 51(3), pages 415-435, July.
    38. Lang, Kevin & Jian, Tianlun, 2004. "Property taxes and property values: evidence from Proposition," Journal of Urban Economics, Elsevier, vol. 55(3), pages 439-457, May.
    39. Jan K. Brueckner, 2003. "Strategic Interaction Among Governments: An Overview of Empirical Studies," International Regional Science Review, , vol. 26(2), pages 175-188, April.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Tommaso Oliviero & Agnese Sacchi & Annalisa Scognamiglio & Alberto Zazzaro, 2019. "House prices and immovable property tax: Evidence from OECD countries," Metroeconomica, Wiley Blackwell, vol. 70(4), pages 776-792, November.
    2. Oliviero, Tommaso & Scognamiglio, Annalisa, 2019. "Property tax and property values: Evidence from the 2012 Italian tax reform," European Economic Review, Elsevier, vol. 118(C), pages 227-251.
    3. Shangfa Hou & Jiaying Wang & Degui Zhu, 2022. "Has the Newly Imposed Property Tax Controlled Housing Prices? An Analysis of China’s 2009–2020 Interprovincial Panel Data," Sustainability, MDPI, vol. 14(22), pages 1-18, November.
    4. Kang Mo Koo & Jerry Liang, 2021. "The Effect of Bilingual Education on Housing Price-a Case Study of Bilingual School Conversion," The Journal of Real Estate Finance and Economics, Springer, vol. 62(4), pages 629-664, May.
    5. Andrew Hanson, 2021. "Taxes and Economic Development: An Update on the State of the Economics Literature," Economic Development Quarterly, , vol. 35(3), pages 232-253, August.
    6. Eli Beracha & William G. Hardin, 2021. "The housing price premium associated with charter schools," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 49(4), pages 1267-1289, December.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. George R. Zodrow, 2019. "Intrajurisdictional Capitalization and the Incidence of the Property Tax," World Scientific Book Chapters, in: George R Zodrow (ed.), TAXATION IN THEORY AND PRACTICE Selected Essays of George R. Zodrow, chapter 16, pages 489-522, World Scientific Publishing Co. Pte. Ltd..
    2. Skidmore, Mark & Reese, Laura & Kang, Sung Hoon, 2012. "Regional analysis of property taxation, education finance reform, and property value growth," Regional Science and Urban Economics, Elsevier, vol. 42(1-2), pages 351-363.
    3. Christian A. L. Hilber, 2017. "The Economic Implications of House Price Capitalization: A Synthesis," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 45(2), pages 301-339, April.
    4. Hilber, Christian A. L., 2011. "The economics implications of house price capitalization a survey of an emerging literature," LSE Research Online Documents on Economics 58596, London School of Economics and Political Science, LSE Library.
    5. George R. Zodrow, 2007. "The Property Tax Incidence Debate and the Mix of State and Local Finance of Local Public Expenditures," CESifo Economic Studies, CESifo, vol. 53(4), pages 495-521, December.
    6. Björn Kauder, 2015. "Spatial Administrative Structure And Intrametropolitan Tax Competition," Journal of Regional Science, Wiley Blackwell, vol. 55(4), pages 626-643, September.
    7. Andrew Hanson, 2021. "Taxes and Economic Development: An Update on the State of the Economics Literature," Economic Development Quarterly, , vol. 35(3), pages 232-253, August.
    8. IREGUI, Ana María & Ligia Melo & Jorge Ramos, 2005. "El impuesto predial en Colombia: factores explicativos del recaudo," Revista de Economía del Rosario, Universidad del Rosario, June.
    9. Cao, Jing & Hu, Wenhao, 2016. "A microsimulation of property tax policy in China," Journal of Housing Economics, Elsevier, vol. 33(C), pages 128-142.
    10. Isaiah Hull & Anna Grodecka-Messi, 2022. "Measuring the Impact of Taxes and Public Services on Property Values: A Double Machine Learning Approach," Papers 2203.14751, arXiv.org.
    11. Braid, Ralph M., 2009. "The employment effects of a central city's source-based wage tax or hybrid wage tax," Regional Science and Urban Economics, Elsevier, vol. 39(4), pages 512-521, July.
    12. Gilbert E. Metcalf & Don Fullerton, 2002. "The Distribution of Tax Burdens: An Introduction," NBER Working Papers 8978, National Bureau of Economic Research, Inc.
    13. Grodecka, Anna & Hull, Isaiah, 2019. "The Impact of Local Taxes and Public Services on Property Values," Working Paper Series 374, Sveriges Riksbank (Central Bank of Sweden).
    14. Fullerton, Don & Metcalf, Gilbert E., 2002. "Tax incidence," Handbook of Public Economics, in: A. J. Auerbach & M. Feldstein (ed.), Handbook of Public Economics, edition 1, volume 4, chapter 26, pages 1787-1872, Elsevier.
    15. Sotiris Karkalakos & Christos Kotsogiannis, 2007. "A spatial analysis of provincial corporate income tax responses: evidence from Canada," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 40(3), pages 782-811, August.
    16. Lars P. Feld & Jost H. Heckemeyer, 2011. "Fdi And Taxation: A Meta‐Study," Journal of Economic Surveys, Wiley Blackwell, vol. 25(2), pages 233-272, April.
    17. Stephen Coate & Yanlei Ma, 2017. "Evaluating The Social Optimality Of Durable Public Good Provision Using The Housing Price Response To Public Investment," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 58(1), pages 3-31, February.
    18. Byron F. Lutz, 2009. "Fiscal amenities, school finance reform and the supply side of the Tiebout market," Finance and Economics Discussion Series 2009-18, Board of Governors of the Federal Reserve System (U.S.).
    19. Giertz, Seth H. & Ramezani, Rasoul & Beron, Kurt J., 2021. "Property tax capitalization, a case study of Dallas County," Regional Science and Urban Economics, Elsevier, vol. 89(C).
    20. Athiphat Muthitacharoen & George R. Zodrow, 2008. "The Efficiency Costs of Local Property Tax," International Center for Public Policy Working Paper Series, at AYSPS, GSU paper0815, International Center for Public Policy, Andrew Young School of Policy Studies, Georgia State University.

    More about this item

    Keywords

    local public finance; property tax; property value growth;
    All these keywords.

    JEL classification:

    • R10 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - General
    • R50 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Regional Government Analysis - - - General

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ces:ceswps:_3899. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Klaus Wohlrabe (email available below). General contact details of provider: https://edirc.repec.org/data/cesifde.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.