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Tax Limits, Houses, and Schools: Seemingly Unrelated and Offsetting Effects

  • William Hoyt

    (Martin School of Public Policy and Administration and Department of Economics, University of Kentucky)

  • Paul A. Coomes

    ()

    (Department of Economics and College of Business, University of Louisville)

  • Amelia M. Biehl

    (Department of Economics, University of Southern Indiana)

Property tax limitations, as well as other tax and expenditure restrictions on state and local governments in the United States, date back to the late nineteenth century. A surge in property tax limitation legislation occurred in the late 1970s and early 1980s, and its effects on government revenue, school financing, and educational quality have been studied extensively. However, there is surprisingly little literature on how property tax limits affect housing markets. For the first time, we examine the impacts of property tax limitations on housing growth, in addition to their impacts on housing prices. Using state-level data over twenty-three years, we find that property tax limits increase housing prices (indexes) by approximately 1.6%. These limits appear to have little impact on the growth in the housing stock, as measured by the number of permits. Our evidence suggests that this is because while property tax limits reduce property taxes they also increase the price of housing. These two counteracting effects lead to ambiguous impacts on the gross price of housing.

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File URL: http://www.ifigr.org/publication/ifir_working_papers/IFIR-WP-2009-03.pdf
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Paper provided by University of Kentucky, Institute for Federalism and Intergovernmental Relations in its series Working Papers with number 2009-03.

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Length: 44 pages
Date of creation: Jan 2009
Date of revision:
Handle: RePEc:ifr:wpaper:2009-03
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  1. Anderson, Nathan B., 2006. "Property Tax Limitations: An Interpretative Review," National Tax Journal, National Tax Association, vol. 59(3), pages 685-94, September.
  2. 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.
  3. Bates, Laurie J. & Santerre, Rexford E., 2003. "The impact of a state mandated expenditure floor on aggregate property values," Journal of Urban Economics, Elsevier, vol. 53(3), pages 531-540, May.
  4. Downes, Thomas A., 1992. "Evaluating the Impact of School Finance Reform on the Provision of Public Education: The California Case," National Tax Journal, National Tax Association, vol. 45(4), pages 405-19, December.
  5. Brueckner, Jan K., 1979. "Property values, local public expenditure and economic efficiency," Journal of Public Economics, Elsevier, vol. 11(2), pages 223-245, March.
  6. Karl E. Case & Robert J. Shiller, 1988. "The Efficiency of the Market for Single-Family Homes," NBER Working Papers 2506, National Bureau of Economic Research, Inc.
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