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Capitalization of Property Taxes in Norway

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  • Lars-Erik Borge
  • Jørn Rattsø

Abstract

Capitalization of the property tax is of particular interest in Norway since many local governments decide not to have a property tax. We apply a rich data set of housing transactions and characteristics for three years (1997–1999) and combine them with local government-level data about property taxation, local services, and community characteristics. The analysis of capitalization faces serious methodological challenges of endogeneity and background factors affecting housing prices and local fiscal decisions. We investigate the relationship between property tax and housing prices using a variety of econometric specifications and using instruments for property taxation. The results indicate that housing prices respond to property taxation and with full capitalization at realistic discount rates. High child care coverage also contributes to high housing prices. The existence of capitalization effects suggests that housing markets reflect local fiscal conditions and that residential mobility is of importance to understand local government resource use.

Suggested Citation

  • Lars-Erik Borge & Jørn Rattsø, 2014. "Capitalization of Property Taxes in Norway," Public Finance Review, , vol. 42(5), pages 635-661, September.
    • Handle: RePEc:sae:pubfin:v:42:y:2014:i:5:p:635-661
    DOI: 10.1177/1091142113489845
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    References listed on IDEAS

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    1. Carlsen, Fredrik & Langset, Bjorg & Rattso, Jorn, 2005. "The relationship between firm mobility and tax level: Empirical evidence of fiscal competition between local governments," Journal of Urban Economics, Elsevier, vol. 58(2), pages 273-288, September.
    2. Oates, Wallace E, 1973. "The Effects of Property Taxes and Local Public Spending on Property Values: A Reply and Yet Further Results," Journal of Political Economy, University of Chicago Press, vol. 81(4), pages 1004-1008, July-Aug..
    3. Andrews,Donald W. K. & Stock,James H. (ed.), 2005. "Identification and Inference for Econometric Models," Cambridge Books, Cambridge University Press, number 9780521844413, January.
    4. Brennan,Geoffrey & Buchanan,James M., 2006. "The Power to Tax," Cambridge Books, Cambridge University Press, number 9780521027922, January.
    5. Claudia Goldin & Gary D. Libecap, 1994. "Introduction to "The Regulated Economy: A Historical Approach to Political Economy"," NBER Chapters, in: The Regulated Economy: A Historical Approach to Political Economy, pages 1-12, National Bureau of Economic Research, Inc.
    6. Joshua D. Angrist & Jörn-Steffen Pischke, 2009. "Mostly Harmless Econometrics: An Empiricist's Companion," Economics Books, Princeton University Press, edition 1, number 8769.
    7. 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..
    8. Do, A. Quang & Sirmans, C. F., 1994. "Residential Property Tax Capitalization: Discount Rate Evidence from California," National Tax Journal, National Tax Association, vol. 47(2), pages 341-48, June.
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    Cited by:

    1. Collin D. Hodges & Heather M. Stephens, 2022. "Does municipal incorporation always increase property values?," Growth and Change, Wiley Blackwell, vol. 53(1), pages 200-220, March.
    2. Lawrence M. Kessler & Donald Bruce, 2024. "A SALT on real estate? Housing market and migration responses to the limit on the state and local tax deduction," Contemporary Economic Policy, Western Economic Association International, vol. 42(4), pages 683-704, October.
    3. Björn Kauder, 2015. "Spatial Administrative Structure And Intrametropolitan Tax Competition," Journal of Regional Science, Wiley Blackwell, vol. 55(4), pages 626-643, September.
    4. Lars-Erik Borge & Jørn Rattsø, 2017. "Local Economic Consequences of Investment in Children: Capitalization of Child Care Services," CESifo Working Paper Series 6809, CESifo.

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