Working Paper: NBER ID: w17145
Authors: 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.
Keywords: Property Taxation; Zoning; Efficiency; Dynamic Analysis
JEL Codes: H21; H72
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Zoning regulations (R52) | Housing supply (R31) |
| Housing supply (R31) | Housing prices (R31) |
| Zoning regulations (R52) | Housing prices (R31) |
| Zoning regulations (R52) | Community composition (Q57) |
| Community composition (Q57) | Housing prices (R31) |
| Zoning regulations (R52) | Inefficiencies in resource allocation (D61) |