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On the Political Economy of Land Value Capitalization and Local Public Sector Rent-Seeking in a Tiebout Model

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Listed author(s):
  • Joseph Gyourko
  • Joseph S. Tracy

Abstract

In this paper we examine the political economy. of capitalization in a Tiebout model when there is a rent-seeking public bureaucracy. A new approach is suggested for testing for the influence of successful local public sector rent-seeking on local property values. We present empirical evidence showing that property values are lower in cities which pay their public sector workers significantly more than similar public sector workers earn in other cities. Finally, we discuss how the regulatory process can be used to distribute rents arising from a short-run Tiebout disequilibrium to landowners, public sector workers, and renters.

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File URL: http://www.nber.org/papers/w1919.pdf
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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 1919.

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Date of creation: May 1986
Publication status: published as Journal of Urban Economics, 1989, vol. 26, pp. 152-173.
Handle: RePEc:nbr:nberwo:1919
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  1. Romer, Thomas & Rosenthal, Howard, 1979. "The elusive median voter," Journal of Public Economics, Elsevier, vol. 12(2), pages 143-170, October.
  2. Linneman, Peter D, 1978. "The Capitalization of Local Taxes: A Note on Specification," Journal of Political Economy, University of Chicago Press, vol. 86(3), pages 535-538, June.
  3. Leeds, Michael A., 1985. "Property values and pension underfunding in the local public sector," Journal of Urban Economics, Elsevier, vol. 18(1), pages 34-46, July.
  4. Oates, Wallace E, 1969. "The Effects of Property Taxes and Local Public Spending on Property Values: An Empirical Study of Tax Capitalization and the Tiebout Hypothesis," Journal of Political Economy, University of Chicago Press, vol. 77(6), pages 957-971, Nov./Dec..
  5. Ehrenberg, Ronald G. & Schwarz, Joshua L., 1987. "Public-sector labor markets," Handbook of Labor Economics,in: O. Ashenfelter & R. Layard (ed.), Handbook of Labor Economics, edition 1, volume 2, chapter 22, pages 1219-1260 Elsevier.
  6. Epple, Dennis & Zelenitz, Allan & Visscher, Michael, 1978. "A Search for Testable Implications of the Tiebout Hypothesis," Journal of Political Economy, University of Chicago Press, vol. 86(3), pages 405-425, June.
  7. Inman, Robert P., 1982. "Public employee pensions and the local labor budget," Journal of Public Economics, Elsevier, vol. 19(1), pages 49-71, October.
  8. Charles M. Tiebout, 1956. "A Pure Theory of Local Expenditures," Journal of Political Economy, University of Chicago Press, vol. 64, pages 416-416.
  9. Rosen, Harvey S & Fullerton, David J, 1977. "A Note on Local Tax Rates, Public Benefit Levels, and Property Values," Journal of Political Economy, University of Chicago Press, vol. 85(2), pages 433-440, April.
  10. Gyourko, Joseph & Tracy, Joseph, 1988. "An Analysis of Public- and Private-Sector Wages Allowing for Endogenous Choices of Both Government and Union Status," Journal of Labor Economics, University of Chicago Press, vol. 6(2), pages 229-253, April.
  11. Niskanen, William A, 1975. "Bureaucrats and Politicians," Journal of Law and Economics, University of Chicago Press, vol. 18(3), pages 617-643, December.
  12. Thomas Romer & Howard Rosenthal, 1979. "Bureaucrats Versus Voters: On the Political Economy of Resource Allocation by Direct Democracy," The Quarterly Journal of Economics, Oxford University Press, vol. 93(4), pages 563-587.
  13. Jeffrey S. Zax, 1985. "Labor Relations, Wages and Nonwage Compensation in Municipal Employment," NBER Working Papers 1582, National Bureau of Economic Research, Inc.
  14. Meadows, George Richard, 1976. "Taxes, Spending, and Property Values: A Comment and Further Results," Journal of Political Economy, University of Chicago Press, vol. 84(4), pages 869-880, August.
  15. Henderson, J Vernon, 1985. "The Tiebout Model: Bring Back the Entrepreneurs," Journal of Political Economy, University of Chicago Press, vol. 93(2), pages 248-264, April.
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Cited by:

  1. Cho, Seong-Hoon & Wu, JunJie, 2002. "Environmental Amenities And Community Characteristics: An Empirical Study Of Portland, Oregon," 2002 Annual meeting, July 28-31, Long Beach, CA 19863, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
  2. Bergantino, Angela Stefania & Porcelli, Francesco, 2013. "Housing market prices: capitalisation of efficiency in local public service provision. An application with data on Italian urban transport related expenditures," Working Papers 13_2, SIET Società Italiana di Economia dei Trasporti e della Logistica.
  3. Holmes, Thomas J. & Ohanian, Lee E., 2014. "Pay with Promises or Pay as You Go? Lessons from the Death Spiral of Detroit," Staff Report 501, Federal Reserve Bank of Minneapolis.
  4. Cragg, Michael & Kahn, Matthew, 1997. "New Estimates of Climate Demand: Evidence from Location Choice," Journal of Urban Economics, Elsevier, vol. 42(2), pages 261-284, September.

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