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How Differences in Property Taxes within Cities Affect Urban Sprawl?

  • Song, Yan
  • Zenou, Yves

This article attempts a formal analysis of the connection between the differentiated property tax rates within urban areas and urban spatial pattern in U.S. cities. We first develop a duocentric-city model where the Central Business District (CBD) is located at the origin while the Suburban Business District (SBD) is at the other end of the city. We show that the ratio between the property tax in the suburbs and in the center has an ambiguous impact on the size of the city. We then test this model empirically to determine this sign by using a dataset of effective property tax rates we developed using GIS techniques for central cities and suburbs in 445 urbanized areas. The empirical analysis estimates the link between these two variables by controlling for variables such as population, income, agricultural rent, commuting cost, climate, crime, and employment structure. Results from the empirical analyses suggest that a lower property tax rate in the suburbs in comparison to the central city is associated with more expansive urban growth and greater level of decentralization of population and employment.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 6842.

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Date of creation: May 2008
Date of revision:
Handle: RePEc:cpr:ceprdp:6842
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  1. Edward L. Glaeser & Matthew E. Kahn, 2001. "Decentralized Employment and the Transformation of the American City," NBER Working Papers 8117, National Bureau of Economic Research, Inc.
  2. Henderson, Vernon & Mitra, Arindam, 1996. "The new urban landscape: Developers and edge cities," Regional Science and Urban Economics, Elsevier, vol. 26(6), pages 613-643, December.
  3. Fujita,Masahisa, 1989. "Urban Economic Theory," Cambridge Books, Cambridge University Press, number 9780521346627.
  4. repec:oup:qjecon:v:122:y:2007:i:2:p:775-805 is not listed on IDEAS
  5. Edward L. Glaeser & Matthew E. Kahn, 2003. "Sprawl and Urban Growth," NBER Working Papers 9733, National Bureau of Economic Research, Inc.
  6. Richard Arnott & James G. MacKinnon, 1976. "The Effects of the Property Tax: A General Equilibrium Simulation," Working Papers 205, Queen's University, Department of Economics.
  7. McDonald, John F., 1989. "Econometric studies of urban population density: A survey," Journal of Urban Economics, Elsevier, vol. 26(3), pages 361-385, November.
  8. Brueckner, Jan & Zenou, Yves, 2000. "Space And Unemployment: The Labour-Market Effects Of Spatial Mismatch," CEPR Discussion Papers 2397, C.E.P.R. Discussion Papers.
  9. Glaeser, Edward L & Mare, David C, 2001. "Cities and Skills," Journal of Labor Economics, University of Chicago Press, vol. 19(2), pages 316-42, April.
  10. Wheaton, William C., 1974. "A comparative static analysis of urban spatial structure," Journal of Economic Theory, Elsevier, vol. 9(2), pages 223-237, October.
  11. Smith, T. E. & Zenou, Y., . "Dual labor markets, urban unemployment, and multicentric cities," CORE Discussion Papers RP 1283, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  12. Jordan Rappaport, 2005. "The shared fortunes of cities and suburbs," Economic Review, Federal Reserve Bank of Kansas City, issue Q III, pages 33-60.
  13. Brueckner, Jan K & Kim, Hyun-A, 2003. "Urban Sprawl and the Property Tax," International Tax and Public Finance, Springer, vol. 10(1), pages 5-23, January.
  14. Fujita, M. & Thisse, J.-F. & Zenou, Y., . "On the endogeneous formation of secondary employment centers in a city," CORE Discussion Papers RP 1267, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  15. Brueckner, Jan K., 1987. "The structure of urban equilibria: A unified treatment of the muth-mills model," Handbook of Regional and Urban Economics, in: E. S. Mills (ed.), Handbook of Regional and Urban Economics, edition 1, volume 2, chapter 20, pages 821-845 Elsevier.
  16. Thomas J. Nechyba & Randall P. Walsh, 2004. "Urban Sprawl," Journal of Economic Perspectives, American Economic Association, vol. 18(4), pages 177-200, Fall.
  17. Oates, Wallace E. & Schwab, Robert M., 1997. "The Impact of Urban Land Taxation: The Pittsburgh Experience," National Tax Journal, National Tax Association, vol. 50(1), pages 1-21, March.
  18. Song, Yan & Zenou, Yves, 2006. "Property tax and urban sprawl: Theory and implications for US cities," Journal of Urban Economics, Elsevier, vol. 60(3), pages 519-534, November.
  19. repec:oup:qjecon:v:121:y:2006:i:2:p:587-633 is not listed on IDEAS
  20. McGrath, Daniel T., 2005. "More evidence on the spatial scale of cities," Journal of Urban Economics, Elsevier, vol. 58(1), pages 1-10, July.
  21. Karl E. Case & James H. Grant, 1991. "Property Tax Incidence in a Multijurisdictional Neoclassical Model," Public Finance Review, , vol. 19(4), pages 379-392, October.
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