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The Impact of Local Taxes and Public Services on Property Values

Author

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  • Grodecka, Anna

    (Lund University and Knut Wicksell Centre for Financial Studies)

  • Hull, Isaiah

    (Research Department, Central Bank of Sweden)

Abstract

Attempts to measure the capitalization of local taxes into property prices, starting with Oates (1969), have suffered from a lack of local public service controls. We revisit this vast literature with a novel dataset of 947 time-varying local characteristic and public service controls for all municipalities in Sweden over the 2010-2016 period. To make use of the high dimensional vector of controls, as well as time and geographic fixed effects, we employ a novel empirical approach that modifies the recently-introduced debiased machine learning estimator by coupling it with a deep-wide neural network. We find that existing estimates of tax capitalization in the literature, including quasi-experimental work, may understate the impact of taxes on house prices by as much as 50%. We also exploit the unique features of our dataset to test core assumptions of the Tiebout hypothesis and to estimate the impact of public services, education, and crime on house prices.

Suggested Citation

  • 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).
    • Handle: RePEc:hhs:rbnkwp:0374
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    References listed on IDEAS

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    More about this item

    Keywords

    Local Public Goods; Tax Capitalization; Tiebout Hypothesis; Machine Learning; Property Prices;
    All these keywords.

    JEL classification:

    • C45 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Neural Networks and Related Topics
    • C55 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Large Data Sets: Modeling and Analysis
    • H31 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Household
    • H41 - Public Economics - - Publicly Provided Goods - - - Public Goods
    • R30 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - General

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