The Impact of Local Taxes and Public Services on Property Values

No 374, Working Paper Series from Sveriges Riksbank (Central Bank of Sweden)

Abstract: Attempts to measure the capitalization of local taxes into property prices, starting with Oates (1969), have suffered from a lack of local public service controls. We revisit this vast literature with a novel dataset of 947 time-varying local characteristic and public service controls for all municipalities in Sweden over the 2010-2016 period. To make use of the high dimensional vector of controls, as well as time and geographic fixed effects, we employ a novel empirical approach that modifies the recently-introduced debiased machine learning estimator by coupling it with a deep-wide neural network. We find that existing estimates of tax capitalization in the literature, including quasi-experimental work, may understate the impact of taxes on house prices by as much as 50%. We also exploit the unique features of our dataset to test core assumptions of the Tiebout hypothesis and to estimate the impact of public services, education, and crime on house prices.

Keywords: Local Public Goods; Tax Capitalization; Tiebout Hypothesis; Machine Learning; Property Prices (search for similar items in EconPapers)
JEL-codes: C45 C55 H31 H41 R30 (search for similar items in EconPapers)
Pages: 54 pages
Date: 2019-04-01
New Economics Papers: this item is included in nep-big, nep-cmp and nep-ure
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Persistent link: https://EconPapers.repec.org/RePEc:hhs:rbnkwp:0374

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