Department of Economics
275 Mount Carmel Avenue
Hamden, Connecticut 06518
NBER Working Papers and Publications
|March 2009||The Effect of Property Taxes on Location Decisions:Evidence From the Market for Vacation Homes|
with Randall Walsh: w14793
The Tiebout model assumes that individuals 'vote with their feet' and choose to locate in the jurisdiction which best matches their fiscal preferences. In this paper, we test Tiebout's voting mechanism by examining whether housing purchase decisions are sensitive to changes in local property tax rates. Results from previous empirical tests of the link between property taxes and mobility are mixed and typically suffer from a myriad of identification problems including the confounding influence of tax rates on public good levels, tax endogeneity arising as a result of jurisdictional composition, and aggregation bias. In this paper, we are able to overcome many of the traditional obstacles to identification by: 1) focusing on purchasers of vacation homes who arguably receive no benefits from ...