Border Effects in Suburban Land Use

Differences in property tax rates and sales tax distribution formulas can give suburban municipalities strong incentives to attract commercial and industrial firms to their jurisdictions. If these land uses generate negative externalities for local residents, suburban governments may form concentrations of non-residential land use at the borders of neighboring suburbs. We test this prediction using land use data for every parcel in the Cook County suburbs of Chicago. After controlling for proximity to major streets and rail lines, both commercial and industrial parcels are significantly more likely to be located near municipal boundaries. Low-priced industrial properties are also significantly more likely to be located near municipal boundaries than in the interior of a suburb.