See the thoughtful discussion and evidence in Inman ( 1979)
. As he notes, empirical studies
that are based on a structural model of the demand for service quality and the technology are
likely to generate more meaningful estimates of the degree of congestion than are reduced
form studies. The problem with the reduced form approach is that the so-called 'congestion
parameter' is really the product of a congestion effect and a scale effect.
The focus here is on real estate taxes rather than taxes on personal property. Real estate
includes land and structures. In the tax applies to both business property and to residential
property. Residential property, both single family homes and rental property, accounts for
slightly more than one-half of all assessed valuation.
Developers are also able to play a significant role in rural areas, where many voters are
farmers or otherwise connected with the owners of vacant land and where concern about
jobs and economic growth may offset concerns about fiscal subsidies to new residents
( Fischel, 1992., p. 174
Hamilton relaxed this assumption about the infinite elasticity of supply in a subsequent
paper ( Hamilton, 1976
) but replaced it with another strong assumption, namely that the
benefits from public services can be measured by local public spending. Ross and Yinger
point out that this assumption requires unrealistically that both the income and price
elasticities of demand for public services are equal to zero.
A fourth potential distortion relates to the provision of local public services. In simple
models, the use of a tax on mobile capital leads to underprovision of the public good. In
more complicated models in which housing and public goods are complementary, the
outcome could be either under- or over-provision (see Mieszkowski and
In her 1973 study of the property tax, Ladd concluded that the differential burden on
owner-occupied housing associated with the property tax was on average more than offset
by the preferential treatment of owner-occupied housing under the federal income tax at
In fact, Brueckner shows that this result holds only for the standard situation in which the
increase in the tax on land permits a reduction in the tax on improvements. It is not
impossible for the perverse result to obtain, namely that the rise in the tax rate on land
requires an increase in the tax on improvements in order to maintain revenue.
Aaron, Henry J. ( 1975), Who Pays the Property Tax?: A New View, Washington, DC: Brookings Institute.
Arnott, Richard ( 1996), "Neutral property taxation", processed, Boston College, Department of Economics.
Arnott, R. and
F. Lewis ( 1970), "The transition of land to urban use", Journal of
Political Economy, 87, 161-70.
Bentick, Brian L. ( 1982), "A tax on land value may not be neutral", National Tax
Journal, 35 ( 1), 113.
Brueckner, Jan K. ( 1986), "A modern analysis of the effects of site value taxation", National Tax Journal, 39 ( 1), 49-58.
Feldstein, Martin ( 1977), "The surprising incidence of a tax on pure rent:"a new
answer to an old question, Journal of Political Economy, 85 ( 2), 349-60.
Fischel, William A. ( 1975), "Fiscal and environmental considerations in the location
of firms in suburban communities", in
E. S. Mills and
W. E. Oates, Fiscal Zoning
and Land Use, Lexington, Massachusetts: D.C. Heath.
Fischel, William A. ( 1992), "Communication:"property taxation and the Tiebout
model: evidence for the benefit view from zoning and voting, Journal of Economic Literature, 30, 171-7.