Heterogeneity in property tax capitalization: Evidence from municipalities in Wisconsin

Abstract

AbstractThis article provides evidence that higher property taxes usually decrease property value. On average, a 10% increase in property taxes decreases property value by more than 0.34%. To control for school quality and related sorting, we estimate within‐school‐district property tax impacts. The effective cost of services (driven by appraisal errors or tax code changes), preferences for local services, and the elasticity of supply of housing all play an important role in determining whether property taxes increase or decrease house prices. Locally produced and consumed municipal services such as trash collection are positively capitalized.