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Property Taxation, Zoning, and Efficiency: A Dynamic Analysis

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  • Stephen Coate

Abstract

This paper revisits the classic argument that a system of local governments financing public service provision via property taxes will produce an efficient allocation of both housing and services if communities can implement zoning ordinances. The novel feature of the analysis is a dynamic model in which housing stocks and public policies are endogenously determined. In each period, citizens choose both the level of services for their communities and the zoning ordinances that govern future new construction. The main result of the paper is that there does not exist an equilibrium which has a steady state that is both efficient and satisfies a local stability property. The paper also develops examples in which equilibrium allocations converge to a steady state in which there is over-zoning and households are forced to over-consume housing. The findings of the paper challenge the well-known Benefit View of the property tax.

Suggested Citation

  • Stephen Coate, 2011. "Property Taxation, Zoning, and Efficiency: A Dynamic Analysis," NBER Working Papers 17145, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:17145
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    File URL: http://www.nber.org/papers/w17145.pdf
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    References listed on IDEAS

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    1. Fran?ois Ortalo-Magn? & Andrea Prat, 2014. "On the Political Economy of Urban Growth: Homeownership versus Affordability," American Economic Journal: Microeconomics, American Economic Association, vol. 6(1), pages 154-181, February.
    2. Rady, Sven & Ortalo-Magné, François, 2002. "Homeownership," Discussion Papers in Economics 28, University of Munich, Department of Economics.
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    Cited by:

    1. Epple, Dennis & Romano, Richard & Sieg, Holger, 2012. "The intergenerational conflict over the provision of public education," Journal of Public Economics, Elsevier, vol. 96(3), pages 255-268.

    More about this item

    JEL classification:

    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • H72 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Budget and Expenditures

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