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.
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Notes
In all, there are 11 differences between the present model and the specification in Cebula (2010). Aside from the introduction/addition of the critical variables expressly reflecting the Tiebout (1956)/Tiebout (1956)-Tullock (1971) hypothesis, namely, PROPTAX, SCHOOL, AASU, SSU, and HOSP (four of which are also spatial control variables), and the more inclusive definition of the variable BUSYST, there is the additional spatial variable PROPCRIME. Also, the present study omits the natural log of square feet of finished living space (lnSQFT), and dummy variables reflecting house closings during the months of May, June, and July. Introduction of the latter three seasonal variables in the present specification leads to multicollinearity problems in the present model. On the other hand, use of lnSQFT in place of SQFT neither adds to nor detracts from the findings in the present study.
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Coombs, C.K., Sarafoglou, N. & Crosby, W. Property Taxation, Capitalization, and the Economic Implications of Raising Property Taxes. Int Adv Econ Res 18, 151–161 (2012). https://doi.org/10.1007/s11294-012-9349-0
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DOI: https://doi.org/10.1007/s11294-012-9349-0