Quasi-Experimental Evidence on the Connection between Property Taxes and Residential Capital Investment

Do low property taxes attract new home construction? This question is answered using a large shock to property tax burdens caused by an unusual school finance reform in the state of New Hampshire. The estimates suggest that, in most of the state, communities with a reduced tax burden experience a su...

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Bibliographic Details
Published in:American economic journal. Economic policy 2015-02, Vol.7 (1), p.300-330
Main Author: Lutz, Byron
Format: Article
Language:English
Subjects:
Capital investments
Control groups
Correlation analysis
Econometrics
Economic policy
Education
Elasticity of demand
Housing
Housing needs
Housing starts
Housing supply
Investments
Land use
Municipal taxes
Property taxes
Public goods
Residential buildings
School finance
State court decisions
Studies
Tax rates
Tax reform
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Summary:Do low property taxes attract new home construction? This question is answered using a large shock to property tax burdens caused by an unusual school finance reform in the state of New Hampshire. The estimates suggest that, in most of the state, communities with a reduced tax burden experience a substantial increase in residential construction. In the area of the state near the region's primary urban center (Boston), however, the shock clears through a price adjustment—i.e., by capitalizing into property values. The differing responses are attributed to differing housing supply elasticities.
ISSN:1945-7731
1945-774X
DOI:10.1257/pol.20120017