Zoning and the theory of local public finance

To date, there is a lack of consensus in the local public finance literature with regard to the degree that zoning mitigates distortions implied by property taxation by stimulating housing consumption and deterring the migration of low income households in search of public service tax price subsidies to high income communities. In this dissertation, I investigate the implications for efficiency and equity of zoning in a property tax regime via a comparative analysis of simulated equilibria given property taxation in the presence and absence of zoning and head taxation. To this end, I develop a multijurisdictional general equilibrium model which features endogenous housing markets, household location decisions, intrajurisdictionally heterogeneous populations, voter determined property tax financed public service provision and community zoning constraints, and homogeneous preferences that is capable of generating simulated equilibria. The model is later adapted to the case of heterogeneous preferences over public service provision at the cost of abandoning the endogeneity of zoning constraints. Although the analysis is sensitive to model calibration, I reach some broad conclusions. For the case of homogeneous tastes, zoning is a blunt instrument which imperfectly albeit non-trivially addresses the significant distortionary impact of the property tax and significantly attenuates its redistributive mechanism. Because households are bound by a common zoning constraint, significant micro distortions of housing consumption are observed. Consideration of heterogeneous preferences over public services strengthens my critique. Efficiency implies that low income households with high intensity preferences should in many cases be accommodated in high income jurisdictions. This renders the deterrent zoning imposes on migration ambiguous from the standpoint of efficiency. In many cases, the high income jurisdiction is more exclusive in a property tax with zoning regime than in a head tax regime. This induces relative upward pressure on the price of low income housing in the former regime. Given some specifications which are not altogether unreasonable, zoning impairs efficiency in a property tax regime and in addition benefits the rich at the expense of the poor relative to head taxation! The heterogeneous taste model makes an additional contribution in that it offers an explicit alternative to the median voter hypothesis.