The impact of positive property tax differentials on the timing of development

To link to full-text access for this article, visit this link: http://dx.doi.org/10.1016/j.regsciurbeco.2009.07.004 Byline: Jeremy R. Groves Keywords: Property tax; Property tax incidence; Duration analysis; Urban growth; Sprawl Abstract: To date, few empirical studies have focused on the location decision by residential developers in response to changes in the property tax. Based on a dynamic time-to-development model by Turnbull, this paper finds, using 17 years of parcel level data from Saint Louis County, Missouri, that higher than average tax rates increase the time-to-development for vacant parcels by between 4 and 11%, all else equal. Additionally this paper finds that the tax differential effect is cumulative, resulting in about a 20% increase in the time-to-development for the parcel facing the average number of years with a higher than average rate. These results support the analytical results by both Turnbull [Turnbull, G.K., 1988. The effects of local taxes and public services on residential development patterns. Journal of Regional Science, 28 (4), 541-562.] and McMillen [McMillen, D.P., 1990. The timing and duration of development tax rate increases. Journal of Urban Economics, 28, 1-18.] that the property tax can distort residential capital markets leading to inefficient urban growth, or sprawl. Author Affiliation: Northern Illinois University, Department of Economics, DeKalb, IL 60115, United States Article History: Received 6 March 2009; Revised 13 July 2009; Accepted 14 July 2009 Article Note: (footnote) [star] The author wishes to thank participants at the NIU weekly seminar series, participants at the 2007 Regional Science Association International Annual Conference and several referees. Special thanks are extended to William Rogers, Paul Thorsnes and Virginia Wilcox-Gok for their detailed comments. All errors are mine.