Capitalization of State Tax Rates in Housing Values at State Borders, 2000 – 2017

If housing prices adjust across jurisdictions to equalize utility from housing services across locations, and if higher marginal tax rates constrain budgets, then housing prices will decrease in high tax jurisdictions relative to low tax jurisdictions. Similarly, housing prices will rise to reflect higher levels of government services or locational amenities. We derive a model that demonstrates the interrelationship between housing values, tax rates, government services and naturally occurring amenities and then test it against county-level data at state borders using US Census housing price data from 2000-2017. The data show that property taxes will lower housing prices at state borders, but income and sales tax rates have no effects. The model generates a relative ranking of state tax structures by their capitalized impact on housing values at state borders. The largest tax induced gap in housing prices is at the New York-Connecticut border