Property Taxation, Capitalization, and the Economic Implications of Raising Property Taxes

By Coombs, Christopher K.; Sarafoglou, Nikias et al. | International Advances in Economic Research, May 2012 | Go to article overview

Property Taxation, Capitalization, and the Economic Implications of Raising Property Taxes


Coombs, Christopher K., Sarafoglou, Nikias, Crosby, William, International Advances in Economic Research


Abstract This study applies a hedonic pricing model to provide further empirical evidence whether, in the spirit of Tiebout (Journal of Political Economy 64(1):416 424,1956), Oates (Journal of Political Economy 77(6):957- 971, 1969), and Tullock .Journal of Political Economy 79(5):913-918, 1971), property taxes in particular have been capitalized into housing prices in the city of Savannah, Georgia housing market. There were sufficient data in this context to study a total of 2,888 single-family houses for the six-year period 2000-2005; 591 of these houses were located in the Savannah Historic Landmark District. Estimating the model in semi-log form reveals (after allowing for a variety of factors, including 12 spatial variables, four of which are de facto Tiebout type variables) that the natural log of the real sales price of a single-family house in the city of Savannah environment was in fact negatively affected by the city and county property tax level. This study is prompted by the fact that city and county governments are facing serious financial challenges and are searching for viable revenue sources. Increasing property taxes is one of the potential revenue sources being considered by elected officials. In providing current evidence on the effects of property tax in particular and on the Tiebout hypothesis in general, we seek to alert city and state governments of the potential consequences and perils of property tax hikes.

Keywords Housing prices Property tax capitalization Public goods capitalization

JEL R14 R13 R11

Introduction

Since the meltdown of U.S. mortgage and credit markets, city, county, and state governments have been searching with an increasing sense of urgency for either new sources of revenue or means by which to expand existing sources of revenue. In the cases of city and county governments, property tax increases are a particularly tempting vehicle with which to attempt to elevate revenues since, at least in the short run, they have a captive audience (resident homeowners). The present study seeks to provide current evidence as to whether or not such increased property taxes would adversely affect housing prices. If such tax increases are in fact destined to be capitalized into housing prices, homeowners will be adversely impacted by a decline in their property values and hence a decline in their wealth. In turn, to the extent that higher property taxes reduce wealth, consumption spending can be expected to decline, bringing with it further upward pressure on unemployment rates and potential other distortions in resource allocation as well (Cebula and Alexander 2006). To help ensure more dependable results, Tiebout (1956) factors aside from just the property tax are also integrated into the analysis.

Hedonic pricing models have been used in a number of studies to assess the impacts of historic district designation and other factors on property values (Coffin 1989; Ford 1989; Asabere and Huffman 1994; Asabere et al. 1994; Clark and Herrin 1997; Coulson and Leichenko 2001; Leichenko et al. 2001; Coulson and Lahr 2005; Sirmans et al. 2005). This study seeks to extend the literature by applying the hedonic pricing model to the prices of single-family homes in the metropolitan area of Savannah, Georgia, with emphasis on the question of whether property taxes (and a variety of Tiebout (1956) type variables) are capitalized into housing prices. In addition to focusing upon the issue of whether property taxes (PROPTX) are capitalized into housing prices in the city of Savannah, this study considers four Tiebout (1956) type variables. These include: close proximity to public primary, middle, and secondary schools (SCHOOL); relatively close proximity to the city's two public universities; and relatively close proximity to the city's primary hospitals, which are in fact funded to some significant degree by state and local public revenues.

This study also accounts for a number of other factors influencing the housing market. …

The rest of this article is only available to active members of Questia

Sign up now for a free, 1-day trial and receive full access to:

  • Questia's entire collection
  • Automatic bibliography creation
  • More helpful research tools like notes, citations, and highlights
  • Ad-free environment

Already a member? Log in now.

Notes for this article

Add a new note
If you are trying to select text to create highlights or citations, remember that you must now click or tap on the first word, and then click or tap on the last word.
One moment ...
Default project is now your active project.
Project items

Items saved from this article

This article has been saved
Highlights (0)
Some of your highlights are legacy items.

Highlights saved before July 30, 2012 will not be displayed on their respective source pages.

You can easily re-create the highlights by opening the book page or article, selecting the text, and clicking “Highlight.”

Citations (0)
Some of your citations are legacy items.

Any citation created before July 30, 2012 will labeled as a “Cited page.” New citations will be saved as cited passages, pages or articles.

We also added the ability to view new citations from your projects or the book or article where you created them.

Notes (0)
Bookmarks (0)

You have no saved items from this article

Project items include:
  • Saved book/article
  • Highlights
  • Quotes/citations
  • Notes
  • Bookmarks
Notes
Cite this article

Cited article

Style
Citations are available only to our active members.
Sign up now to cite pages or passages in MLA, APA and Chicago citation styles.

(Einhorn, 1992, p. 25)

(Einhorn 25)

1

1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

Cited article

Property Taxation, Capitalization, and the Economic Implications of Raising Property Taxes
Settings

Settings

Typeface
Text size Smaller Larger Reset View mode
Search within

Search within this article

Look up

Look up a word

  • Dictionary
  • Thesaurus
Please submit a word or phrase above.
Print this page

Print this page

Why can't I print more than one page at a time?

Full screen

matching results for page

Cited passage

Style
Citations are available only to our active members.
Sign up now to cite pages or passages in MLA, APA and Chicago citation styles.

"Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn, 1992, p. 25).

"Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn 25)

"Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences."1

1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

Cited passage

Welcome to the new Questia Reader

The Questia Reader has been updated to provide you with an even better online reading experience.  It is now 100% Responsive, which means you can read our books and articles on any sized device you wish.  All of your favorite tools like notes, highlights, and citations are still here, but the way you select text has been updated to be easier to use, especially on touchscreen devices.  Here's how:

1. Click or tap the first word you want to select.
2. Click or tap the last word you want to select.

OK, got it!

Thanks for trying Questia!

Please continue trying out our research tools, but please note, full functionality is available only to our active members.

Your work will be lost once you leave this Web page.

For full access in an ad-free environment, sign up now for a FREE, 1-day trial.

Already a member? Log in now.