The Effects of Property Taxes and Public Service Benefits on Housing Values: A County-Level Analysis

Abstract

This study investigates the relation between residential property values and both property taxes and public services in Georgia’s counties. Capitalization theory predicts that property values relate negatively to property taxes, and positively to public services. Palmon and Smith (1998) state that errors in public service measures create a capitalization coefficient bias that makes it difficult to isolate tax effects from public service effects. This paper is a first step in defining and quantifying public services and their marginal effect on housing values. It develops public service measures in four quality-of-life areas – economy, education, health, and public safety. The models suggest a strong negative relation between effective tax rates and property values, and a significant positive association between the public service measures and property values. Analyses indicate that property taxes are capitalized into housing prices at greater than 100%, suggesting prior underestimations based on measurement errors in public service variables.

Citation

Key, K., Lightner, T. and Luo, B. (2017), "The Effects of Property Taxes and Public Service Benefits on Housing Values: A County-Level Analysis", Advances in Taxation (Advances in Taxation, Vol. 23), Emerald Group Publishing Limited, Leeds, pp. 1-31. https://doi.org/10.1108/S1058-749720160000023007