The incentive effects of property taxation: Evidence from Norwegian school districts

Abstract

Abstract:Recent theoretical contributions indicate favorable incentive effects of property taxation on public service providers. The object of this paper is to confront these theories with data from Norwegian school districts. The institutional setting in Norway is well suited for analyzing the effects of property taxation because one can compare school districts with and without property taxation. To take into account potential endogeneity of the choice of implementing property taxation, we rely on instrumental variable techniques. The empirical results indicate that, conditional on resource use, property taxation improves school quality measured as students' result on the national examination.

Property tax and fiscal discipline in OECD countries

“…Our findings are consistent with the hypothesis that property taxes are less distortive and that, being visible and transparent, are likely to stimulate voters to be aware about the costs of public programs and politicians to be fiscally more disciplined (Oates, 2001). They are also consistent with previous studies highlighting the incentive effects of property taxes in controlling costs of the public sector (e.g., Glaeser, 1996;Borge and Rattso, 2008;Fiva and Ronning, 2008). Such beneficial effect of property taxation on fiscal outcomes finds correspondence in the empirical literature on fiscal decentralization in OECD countries, according to which not all taxes are the same for restrain public spending at the sub-national level, and only property taxes seem to favor smaller local governments (Liberati and Sacchi, 2013).…”

“…A related literature has looked at the effect of property tax on wealth accumulation(Holtz-Eakin and Marples, 2001;Joulfaian, 2006), tax avoidance(Kopczuk and Slemrod, 2001), public goods supply(Borge and Rattso, 2008;Fiva and Ronning, 2008), local governments size(Crowley and Sobel, 2011;Liberati and Sacchi, 2013) and economic growth(Arnold et al, 2011;Acosta-Ormaechea and Yoo, 2012) …”

Do Smaller Classes Always Improve Students’ Long‐run Outcomes?

“…There is some empirical support for this theoretical prediction. Separating between municipalities with and without property taxation, Fiva and Rønning () find that student achievement measured by grades in lower secondary education is higher in Norwegian municipalities with local property taxation. Borge and Rattsø () provide evidence that local property taxation reduces unit costs in utility services in Norwegian municipalities.…”

Property taxation as incentive for cost control: Empirical evidence for utility services in Norway

“…Utilities are of direct importance for property values and therefore of particular relevance for the incentive effects of property taxation. Related investigations of the Norwegian property tax are made by Fiva and Rattsø (2005) and Fiva and Rønning (2005).…”