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Property Taxation, Zoning, and Efficiency: A Dynamic Analysis

  • Stephen Coate

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.

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File URL: http://www.nber.org/papers/w17145.pdf
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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 17145.

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Date of creation: Jun 2011
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Handle: RePEc:nbr:nberwo:17145
Note: PE POL
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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 154-81, February.
  2. Rady, Sven & Ortalo-Magné, François, 2002. "Homeownership," Discussion Papers in Economics 28, University of Munich, Department of Economics.
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