Local property taxation with external land ownership

When housing in a local jurisdiction is produced using perfectly mobile capital and land owned by non-residents, a property tax on housing results in tax exporting. This paper examines how property tax-poll subsidy policies are determined in the presence of tax exporting, and shows that the optimal property tax is the optimal tariff when residents are homogeneous, When residents have different incomes and are mobile across jurisdictions, the majority voting equilibrium property tax-poll subsidy policy depends on factors such as tax exporting, intrajurisdictional redistribution and congestion. If the effect of intrajurisdictional redistribution is negligible for the median voter, household mobility may result in a property tax-poll subsidy policy that induces emigration of rich households. (C) 1998 Elsevier Science S.A.