TY  - JOUR
AU  - Glaeser,Edward L.
TI  - The Incentive Effects of Property Taxes on Local Governments
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 4987
PY  - 1995
Y2  - January 1995
UR  - http://www.nber.org/papers/w4987
L1  - http://www.nber.org/papers/w4987.pdf
N1  - Author contact info:
Edward L. Glaeser
Department of Economics
315A Littauer Center
Harvard University
Cambridge, MA 02138
Tel: 617/495-0575
Fax: 617/495-7730
E-Mail: eglaeser@harvard.edu
AB  - This paper applies the ideas of Brennan and Buchanan (1977, 1978, 1980) to local property taxes.  When local governments maximize their revenues, property taxes provide incentives for adequate amenity provision.  Local amenity provision determines property values which then determine local tax revenues.  As long as the demand for housing is inelastic, property-taxes will provide stronger incentives for local governments than lump-sum taxes.  As current property values reflect expectations about future amenity levels, property taxes create incentives for even the most myopic government to invest for the future.  Local property taxes can also act to limit the incentives of localities to tax; there are cases where higher levels of local property taxes lead to lower overall tax burdens.  These ideas are applied to the tax reform in the late 1970s; one reason that tax reform may have been so successful is that in a period where land prices are driven by many forces other than government amenities, property taxes lose their value as incentive devices.
ER  -