Demand for new cities: Property value capitalization of municipal incorporation

• Published in: Regional science and urban economics Vol. 67; pp. 78 - 89
• Main Authors: Patrick, Carlianne, Mothorpe, Christopher
• Format: Journal Article
• Language: English
• Published: Amsterdam Elsevier B.V 01.11.2017; Elsevier Sequoia S.A
• Subjects: Capitalization; Cities; Decentralization; Endogenous political jurisdiction formation; H73; Hedonic difference-in-differences; Imbalance; Incorporation; Metropolitan areas; Municipal incorporation; Property taxation; Property values; R21; R31; Real estate; Redistribution; Studies; Atlanta Georgia; United States > US; R21; R31; H73; Decentralization; Municipal incorporation; Property taxation; Hedonic difference-in-differences; Endogenous political jurisdiction formation
• ISSN: 0166-0462; 1879-2308
• DOI: 10.1016/j.regsciurbeco.2017.09.002

This paper investigates property value capitalization of municipal incorporation. Using detailed data from the metropolitan Atlanta area, our empirical strategy combines difference-in-differences hedonics with a relatively underutilized matching method from the class of monotonic imbalance bounding methods that approximates a fully blocked randomized experiment. We find that new city formation is positively capitalized into property values within the new city, increasing 4–5% in the two years following new city formation compared to the two years prior and 12–13% over the entire analysis period. The results also indicate that capitalization is stronger for parcels with greater potential for redistribution. •Examines the capitalization of municipal incorporation into residential property values.•Incorporation increases property values by an initial 4 – 5 % and 12 – 13% over time.•Capitalization is stronger for parcels with greater potential for redistribution.•Evidence that voluntary formation of local public good jurisdictions is welfare-enhancing.•Curtailed redistribution in public good space is a channel driving incorporation and capitalization effects.