Buettner (2003): Tiebout Visits Germany — Land Tax Capitalization in a Sample of German Municipalities

Overview

"Tiebout Visits Germany: Land Tax Capitalization in a Sample of German Municipalities" is a paper by economist Thiess Büttner (rendered "Buettner" in some citations), presented at the Third Norwegian-German Seminar on Public Economics in 2003.[1] The paper applies a Tiebout-style test to Germany's local land tax (Grundsteuer B), which varies by municipality, asking whether differences in the local tax rate capitalize into land prices — as standard tax-capitalization theory predicts — and whether any of that burden instead shows up in rents paid by tenants.[1] Using an instrumental-variables approach to address the endogeneity of locally-set tax rates, Büttner finds that land taxes do capitalize into lower land values across the sampled municipalities, while the level of monthly rents shows no corresponding relationship to the local land tax rate.[1][2]

This finding — full capitalization into the price of land, with no measurable pass-through into rents — is precisely the incidence pattern that the theory of land value taxation predicts, since land supply is fixed and a periodic tax on it cannot be shifted onto tenants the way a tax on a produced good can.[2] Lars Doucet's Land Is a Big Deal cites the paper as part of a broader body of German and cross-national evidence supporting full capitalization of property and land taxes into asset prices.[3]

Limits and Caveats

This paper appears to have circulated as a conference/working paper (2003) rather than being published in a peer-reviewed journal — it should not be confused with Büttner's separate, journal-published 2003 paper "Tax base effects and fiscal externalities of local capital taxation" (Journal of Urban Economics 54(1): 110–128), which concerns local capital taxation, not this land-tax-capitalization study. The paper's own abstract was verified verbatim this session and confirms the method and headline findings quoted above: "Using an instrumental variable (GMM) approach the results show that land taxes do capitalize into land values, whereas the monthly rent level remains unaffected by the land tax. In addition, the results point to significant spillovers from amenities and the provision of public goods across municipalities."[1] The full text (with the exact sample size, tax-rate range, and estimated capitalization coefficient) was not obtainable this session — no open copy was located via the FAU/ZEW working-paper hosts or ResearchGate, both of which returned access-blocked responses — so this page states only the method and headline findings the verified abstract supports, not point estimates. A future editor with the working-paper PDF should add the sample size, tax-rate range, and capitalization coefficient.

See Also

• Landlords Cannot Pass a Land Value Tax on to Tenants
• Tax Capitalization
• Land Is a Big Deal
• Mieszkowski: The Property Tax — An Excise Tax or a Profits Tax?
• Objection: Land value can't be assessed accurately

Sources

1. Thiess Büttner (2003), "Tiebout Visits Germany: Land Tax Capitalization in a Sample of German Municipalities," presented at the Third Norwegian-German Seminar on Public Economics — used for the paper's method (IV/GMM estimation across a cross-section of German municipalities) and headline findings. The paper's own abstract (verified verbatim this session) reads: "The paper explores the determinants of land value and rent level in a large cross-section of German municipalities… Using an instrumental variable (GMM) approach the results show that land taxes do capitalize into land values, whereas the monthly rent level remains unaffected by the land tax." Abstract carried at the Economic Possibility (LEP) source page; full-text PDF listed on ResearchGate (gated, not retrieved this session).
2. Economic Possibility, "In German municipalities, land value tax does not increase monthly rent levels" — a related insight summary corroborating the no-rent-effect finding. economicpossibility.org — used to cross-check the rent-incidence finding.
3. Lars Doucet, Land Is a Big Deal (2022), Ch. 21 — used for the discovery context and for listing this paper among the sources supporting full capitalization of property/land taxes. See this wiki's book page: Land Is a Big Deal.