How Differences in Property Taxes within Cities Affect Urban Sprawl

This article attempts a formal analysis of the connection between the differentiated property tax within urban areas and urban sprawl in U.S. cities. We first develop a theoretical model in which the city is duocentric, where the Central Business District (CBD) is located at the origin while the Suburban Business District (SBD hereafter) is at the other end of the city. We show that the ratio between the property tax in the suburbs and in the center has an ambiguous impact on the size of the city. We then test this model empirically to determine this sign by using a dataset of effective property tax rates we developed using GIS techniques for central cities and suburbs in 448 urbanized areas. The empirical analysis estimates a regression equation relating an urbanized area’s size to the ratio of property tax rate in suburbs to the rate in central cities and other control variables such as population, income, agricultural rent, and transportation expenditure. Results from the empirical analysis suggest that a lower ratio between the property tax in the suburbs and in the center results in urban sprawl.