Intra-Jurisdictional Tax Variations, Vertical Differentiation and Housing Prices

We study the presence of property tax capitalization in an intra-jurisdictional setting with tax rates linked to property characteristics. We hypothesize that a tax rate conditional on housing quality would distort not only... [ view full abstract ]

We study the presence of property tax capitalization in an intra-jurisdictional setting with tax rates linked to property characteristics. We hypothesize that a tax rate conditional on housing quality would distort not only the prices, but also the quality offerings. The tax capitalization would be partially or totally compensated by a price increase driven by quality increases. We present evidence for Bogota, using Regression Discontinuity, to assess whether a higher tax burden affects the property value and a set of measures of housing quality. Our resultssuggest that the capitalization effect is more than compensated. Additional results showing a positive distortion in housing-quality supports our hypothesis.