IDEAS home Printed from https://ideas.repec.org/a/sae/pubfin/v20y1992i3p359-377.html
   My bibliography  Save this article

Empirical Tests for Allocative Efficiency in the Local Public Sector

Author

Listed:
  • Anwar M. Shah

    (World Bank, Washington, DC, Department of Finance, Government of Canada, Ottawa)

Abstract

This article reports evidence from two tests for allocative efficiency in the local public sector using micro-based data. The first test is based on Brueckner's (1979, 1982) theoretical result that a nonpositive relationship between public services and residential property values is a definite indicator of over provision of local public goods beyond optimal levels in the case of typical mixed communities, that is, communities having substantial business property. This article points out the limitations of Brueckner's empirical analysis and provides a stronger empirical test of allocative efficiency in the local public sector using micro-based data. An alternative test that uses the criterion that, when the level of local spending is optimal, a balanced budget change in local spending and residential property taxation should leave residential property values unaltered, is also presented. Both the tests suggest overprovision of local public goods in metropolitan Edmonton, Canada.

Suggested Citation

  • Anwar M. Shah, 1992. "Empirical Tests for Allocative Efficiency in the Local Public Sector," Public Finance Review, , vol. 20(3), pages 359-377, July.
    • Handle: RePEc:sae:pubfin:v:20:y:1992:i:3:p:359-377
    DOI: 10.1177/109114219202000305
    as

    Download full text from publisher

    File URL: https://journals.sagepub.com/doi/10.1177/109114219202000305
    Download Restriction: no
    File URL: https://libkey.io/10.1177/109114219202000305?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Hamilton, Bruce W, 1976. "Capitalization of Intrajurisdictional Differences in Local Tax Prices," American Economic Review, American Economic Association, vol. 66(5), pages 743-753, December.
    2. King, A Thomas, 1977. "Estimating Property Tax Capitalization: A Critical Comment," Journal of Political Economy, University of Chicago Press, vol. 85(2), pages 425-431, April.
    3. Brueckner, Jan K., 1979. "Property values, local public expenditure and economic efficiency," Journal of Public Economics, Elsevier, vol. 11(2), pages 223-245, March.
    4. Oates, Wallace E, 1969. "The Effects of Property Taxes and Local Public Spending on Property Values: An Empirical Study of Tax Capitalization and the Tiebout Hypothesis," Journal of Political Economy, University of Chicago Press, vol. 77(6), pages 957-971, Nov./Dec..
    5. Chaudry-Shah, Anwar, 1988. "Capitalization and the Theory of Local Public Finance: An Interpretive Essay," Journal of Economic Surveys, Wiley Blackwell, vol. 2(3), pages 209-243.
    6. Reinhard, Raymond M, 1981. "Estimating Property Tax Capitalization: A Further Comment," Journal of Political Economy, University of Chicago Press, vol. 89(6), pages 1251-1260, December.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Christian A. L. Hilber, 2017. "The Economic Implications of House Price Capitalization: A Synthesis," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 45(2), pages 301-339, April.
    2. Hilber, Christian A. L., 2011. "The economics implications of house price capitalization a survey of an emerging literature," LSE Research Online Documents on Economics 58596, London School of Economics and Political Science, LSE Library.
    3. Palmon, Oded & Smith, Barton A., 1998. "A New Approach for Identifying the Parameters of a Tax Capitalization Model," Journal of Urban Economics, Elsevier, vol. 44(2), pages 299-316, September.
    4. Theodore M. Crone, 2006. "Capitalization of the quality of local public schools: what do home buyers value?," Working Papers 06-15, Federal Reserve Bank of Philadelphia.
    5. Grodecka, Anna & Hull, Isaiah, 2019. "The Impact of Local Taxes and Public Services on Property Values," Working Paper Series 374, Sveriges Riksbank (Central Bank of Sweden).
    6. Giertz, Seth H. & Ramezani, Rasoul & Beron, Kurt J., 2021. "Property tax capitalization, a case study of Dallas County," Regional Science and Urban Economics, Elsevier, vol. 89(C).
    7. Isaiah Hull & Anna Grodecka-Messi, 2022. "Measuring the Impact of Taxes and Public Services on Property Values: A Double Machine Learning Approach," Papers 2203.14751, arXiv.org.
    8. Theodore M. Crone, 1998. "House prices and the quality of public schools: what are we buying?," Business Review, Federal Reserve Bank of Philadelphia, issue Sep, pages 3-14.
    9. Keith Dowding & Peter John & Stephen Biggs, 1994. "Tiebout : A Survey of the Empirical Literature," Urban Studies, Urban Studies Journal Limited, vol. 31(4-5), pages 767-797, May.
    10. Sung Hoon Kang & Mark Skidmore & Laura Reese, 2015. "The Effects of Changes in Property Tax Rates and School Spending on Residential and Business Property Value Growth," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 43(2), pages 300-333, June.
    11. David Stadelmann & Steve Billon, 2012. "Capitalisation of Fiscal Variables and Land Scarcity," Urban Studies, Urban Studies Journal Limited, vol. 49(7), pages 1571-1594, May.
    12. Janet Kiholm Smith & Richard L. Smith, 1984. "State and Local Fiscal Policy: Implications for Property Values and Economic Growth," Public Finance Review, , vol. 12(1), pages 51-76, January.
    13. Sylvie Charlot & Sonia Paty & Michel Visalli, 2013. "Assessing the impact of local taxation on property prices: a spatial matching contribution," Applied Economics, Taylor & Francis Journals, vol. 45(9), pages 1151-1166, March.
    14. Benjamin Wirth & Davidt Hardt & Isabella Lehmann, 2016. "Capitalization of Local Taxes and Expenditures - The case of Bavarian Municipalities," ERSA conference papers ersa16p773, European Regional Science Association.
    15. Hilber, Christian A.L. & Lyytikäinen, Teemu & Vermeulen, Wouter, 2011. "Capitalization of central government grants into local house prices: Panel data evidence from England," Regional Science and Urban Economics, Elsevier, vol. 41(4), pages 394-406, July.
    16. Oded Palmon & Baron A. Smith, 1998. "New Evidence on Property Tax Capitalization," Journal of Political Economy, University of Chicago Press, vol. 106(5), pages 1099-1128, October.
    17. Mustafa Oktem & Ju-Chin Huang, 2011. "Property tax shifting under imperfect competition," Applied Economics, Taylor & Francis Journals, vol. 43(2), pages 139-152.
    18. Skidmore, Mark & Ballard, Charles L. & Hodge, Timothy R., 2010. "Property Value Assessment Growth Limits and Redistribution of Property Tax Payments: Evidence From Michigan," National Tax Journal, National Tax Association;National Tax Journal, vol. 63(3), pages 509-537, September.
    19. Angela S. Bergantino & Francesco Porcelli, 2013. "Housing market prices: capitalisation of efficiency in local public service provision. An application with data on Italian urban transport related expenditures," SERIES 0047, Dipartimento di Economia e Finanza - Università degli Studi di Bari "Aldo Moro", revised Aug 2013.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:sae:pubfin:v:20:y:1992:i:3:p:359-377. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: SAGE Publications (email available below). General contact details of provider: .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.