Property taxes, large -lot zoning, and house values: Are there fiscal incentives in suburban government land use decisions

Local governments in the US rely largely on their own revenue, especially property tax, to finance public services. The fiscal zoning theory states that this reliance causes those local governments with zoning power (counties and cities) to zone their vacant land for large-lot, high-value, single-family residential use, especially in suburban areas. This study uses regression models to examine empirically whether local municipalities' reliance on property taxation has an impact on their residential zoning decisions in US suburban areas. Based on the fiscal zoning theory, the hypothesis is that, if a local suburban city with zoning power relies more on its own property tax to finance its public services, it is more likely to zone its vacant land for business and industrial uses. When residential use is needed, large-lot, single family houses are preferred, and therefore higher housing values will be observed.;A sample of 1031 suburban cities in US metropolitan areas is selected and information for year 2000 is collected. The empirical analysis in this study indicates that local municipalities' reliance on the property tax is positively associated with housing value. The fiscal incentives do have an impact on local governments' zoning decisions. This sheds light on the relationship between local public finance and land use planning. Large-lot zoning has been criticized for low-density development patterns and segregation. Any policy aimed at increasing suburban density or promoting racial or income integration has to consider local governments' fiscal constraints. Changing large-lot zoning practices could result from changes in the local public financing system, such as replacing the property tax with other local revenue sources, and increasing financial transfers from higher-level governments, especially state governments.