Abstract
Economic theory indicates that as the effective rate of taxation on residential property rises, a negative influence on capital intensity could occur through less multi-story structures built (an Improvement Effect). Alternatively, a positive influence on capital intensity could occur through housing consumers switching to smaller houses built on smaller lots (a Dwelling Size Effect). An empirical assessment of this issue is therefore necessary; however, methodological concerns in earlier empirical analyses cast doubt on the reliability of findings. Panel data, fixed effects, regression results indicate that a higher rate of effective residential property taxation increases the amount of land used for a given population (greater sprawl).
•A possible effect of residential property taxation levied on the improvement portion of a parcel, in theory, is its encouragement of urban land development at a lower level of population density (or in common vernacular, greater sprawl). Given the pressing policy concern of climate change, and evidence that greenhouse gas emissions per capita decline as population density in Census Tract rises, any discouragement of population density should be of interest.•Theoretical explorations of the expected direction of correlation between the rate of residential property taxation and degree of population density are inconclusive. Economic theory indicates that as the effective rate of taxation on residential property rises, a negative influence on capital intensity could occur through less multi-story structures built (an Improvement Effect). Alternatively, a positive influence on capital intensity could occur through housing consumers switching to smaller houses built on smaller lots (a Dwelling Size Effect).•Previous empirical investigations of the direction of this correlation remain less than definitive due to potential methodological and data concerns. Using lessons garnered from both previous theoretical and empirical explorations of this issue, this research asks whether the effective rate of residential property taxation in a United States urbanized area influence the occurrence of urban sprawl as measured by greater land used for a given population.•Regression results indicate that a higher rate of effective residential property taxation increases the amount of land used for a given population (greater sprawl). Specifically, a one standard deviation increase in this rate of taxation yields between a two to four percent (depending upon how residential property taxation measured) increase in a United States urbanized area's land consumption for a given level of population.•This evidence regarding the spatially expansive effect of traditional property taxation supports the desirability of considering a reduction in the reliance on traditional property taxation as applied to structural value in a parcel, and possibly replacing it with a property tax more heavily assessed on only a parcel's value of its land.