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

  • Joseph Gyourko
  • Joseph S. Tracy

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
Date of revision:
Publication status: published as Journal of Urban Economics, 1989, vol. 26, pp. 152-173.
Handle: RePEc:nbr:nberwo:1919
Note: PE
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  1. Jeffrey S. Zax, 1985. "Labor Relations, Wages and Nonwage Compensation in Municipal Employment," NBER Working Papers 1582, National Bureau of Economic Research, Inc.
  2. 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.
  3. 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 405-25, June.
  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 957-71, Nov./Dec..
  5. Charles M. Tiebout, 1956. "A Pure Theory of Local Expenditures," Journal of Political Economy, University of Chicago Press, vol. 64, pages 416.
  6. 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 869-80, August.
  7. 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.
  8. Niskanen, William A, 1975. "Bureaucrats and Politicians," Journal of Law and Economics, University of Chicago Press, vol. 18(3), pages 617-43, December.
  9. Henderson, J Vernon, 1985. "The Tiebout Model: Bring Back the Entrepreneurs," Journal of Political Economy, University of Chicago Press, vol. 93(2), pages 248-64, April.
  10. 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 535-38, June.
  11. Joseph Gyourko & Joseph Tracy, 1986. "An Analysis of Public and Private Sector Wages Allowing for Endogenous Choices of Both Government and Union Status," NBER Working Papers 1920, National Bureau of Economic Research, Inc.
  12. Romer, Thomas & Rosenthal, Howard, 1979. "Bureaucrats versus Voters: On the Political Economy of Resource Allocation by Direct Democracy," The Quarterly Journal of Economics, MIT Press, vol. 93(4), pages 563-87, November.
  13. Inman, Robert P., 1982. "Public employee pensions and the local labor budget," Journal of Public Economics, Elsevier, vol. 19(1), pages 49-71, October.
  14. Romer, Thomas & Rosenthal, Howard, 1979. "The elusive median voter," Journal of Public Economics, Elsevier, vol. 12(2), pages 143-170, October.
  15. 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 433-40, April.
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