The Spillover Effects of Land Value Taxation: How Can It Affect Your Neighbors' Job Growth?

Summary

Zhou Yang (Robert Morris University) — the same author, with Zackary Hawley, of Yang & Hawley (2022) on split-rate tax-base effects — published "The Spillover Effects of Land Value Taxation: How Can It Affect Your Neighbors' Job Growth?" in The Journal of Real Estate Finance and Economics (online 5 September 2024), DOI 10.1007/s11146-024-09995-y. The published version is paywalled, but the paper began as Lincoln Institute of Land Policy Working Paper WP15ZY1 (2015), "The Spillover Effects of the Two-Rate Property Taxes in Pennsylvania: A Zero-Sum Game or a Win-Win Game?" — freely available from the Lincoln Institute and read in full for this page. The working paper's abstract, methodology, and headline result match the 2024 published abstract essentially verbatim, so the findings below are drawn directly from that open-access precursor.

The paper fills a specific gap the wiki's other split-rate research does not address: every prior Pennsylvania study — Oates & Schwab, Plassmann & Tideman, Banzhaf & Lavery, and Yang's own tax-base paper — measures effects inside the jurisdiction that adopts split-rate taxation. None asks whether a two-rate tax's local gains come at the expense of, or alongside a benefit to, neighboring municipalities that did not adopt it.

The Core Argument and Findings

Using a spatial panel Durbin model on Pennsylvania county subdivisions, 1980–2010, Yang regresses each jurisdiction's decade-over-decade percentage change in employment (four measures: total, construction, male, female) on its own property tax structure and a spatially-weighted average of the tax structure in neighboring jurisdictions, separately identifying two-rate neighbors from single-rate neighbors. Multiple neighborhood "distance rings" (5, 10, 15, and 20 miles, using both straight-line and driving-distance measures) let the model trace how the spillover effect changes with distance.

• Close neighbors lose (Type B — empirical). Within a 5-mile driving distance, a one-unit increase in the log average land-to-structure tax rate differential among two-rate neighbors is associated with roughly a 4.5 percentage-point reduction in a jurisdiction's total employment growth rate, with the negative effect also significant for female employment. The paper reads this as consistent with two-rate jurisdictions attracting firms and workers away from adjacent single-rate municipalities.
• The effect reverses at greater distance. The negative spillover disappears within the 10-mile ring (no significant effect) and then turns positive and significant at 15 miles — a roughly 7.5 percentage-point increase in construction employment growth for a one-unit increase in the neighboring tax-rate differential — persisting, at a smaller magnitude, at 20 miles. Yang's own summary: "two-rate property taxation slows down employment growth in close neighbors but speeds up employment growth in neighbors within a longer distance."
• No significant own-jurisdiction employment effect. The jurisdiction's own tax-rate differential has a positive but statistically insignificant coefficient on its own employment growth across specifications — split-rate taxation's previously-documented effects on construction and tax base (Oates & Schwab; Plassmann & Tideman; Yang & Hawley) do not translate into a detectable employment boost in the adopting jurisdiction itself over this sample.
• Robustness. The pattern (negative-then-positive as the ring widens) holds using an alternative distance measure that ignores road networks, and using two alternative tax-rate specifications (the land-to-structure ratio, and a simple adoption dummy). A Hausman-Wu test using lagged vacancy rates and local government debt as instruments cannot reject exogeneity of the tax-rate differential.

Relation to the Georgist Case

Yang frames the result as testing whether two-rate taxation is a "zero-sum game" (diverting jobs and investment from neighbors) or a "win-win game" (generating agglomeration spillovers that help neighbors too) — and finds both, at different spatial scales. The proposed mechanism: a two-rate municipality may draw firms and construction activity away from its immediate single-rate neighbors (a competitive/diversion effect, strongest close by, where relocation is cheapest), while more distant municipalities may benefit from broader agglomeration economies as the taxing jurisdiction's market and degree of specialization grow. Yang is explicit that this explanation is speculative — "[w]hether these are the actual explanations for the dynamics of the spillover effect across space is debatable and beyond the purpose of this paper."

This is a genuinely double-edged finding for the split-rate case. It does not contradict the construction- and tax-base-level evidence that split-rate taxation stimulates local building activity (see Split-rate taxation increases urban construction): Yang's own within-jurisdiction employment coefficient is positive, just statistically insignificant. But it complicates the simplest reading of that evidence — that a two-rate jurisdiction's gains are a net addition to regional economic activity rather than partly a redistribution from its closest neighbors. The reader-facing honest summary is Yang's own framing: the policy is not simply zero-sum or simply win-win, but both, depending on distance — a nuance the wiki's other split-rate pages, which measure only the adopting jurisdiction, cannot see.

Nuances and Limits

• Employment, not construction or tax base. This paper's dependent variable is employment growth (total, construction, male, female), not building permits or assessed value — the outcome measured by the wiki's other Pennsylvania split-rate studies. The results are not directly comparable magnitude-for-magnitude with, say, Oates & Schwab's permit-value figures.
• Speculative mechanism. The paper documents the spatial pattern (negative close, positive far) carefully but explicitly declines to identify which economic mechanism (firm relocation vs. agglomeration spillovers) actually drives it, calling for further microeconomic research.
• Working-paper text used; published version paywalled. The findings above are verified against the freely available 2015 Lincoln Institute working paper, whose abstract and headline results match the 2024 Journal of Real Estate Finance and Economics publication's abstract; the published version may have refined specifications or an extended sample not reflected here. [VERIFY: confirm whether the published 2024 version updates the 1980–2010 sample period or coefficient magnitudes reported in the 2015 working paper.]
• Pennsylvania-only external validity, as with the rest of the wiki's split-rate evidence base — few other US states have enough adopting municipalities for this kind of spatial analysis.
• No effect within the taxing jurisdiction. Readers should not treat this paper as evidence that split-rate taxation raises employment where it is adopted; the own-jurisdiction coefficient is statistically null. Its contribution is entirely about the spillover pattern, not a new within-jurisdiction employment finding.

Bears On

• Concept: Split-Rate Taxation — direct evidence on a dimension (inter-jurisdictional spillovers) not addressed by the concept page's existing construction and tax-base evidence.
• Benefit: Split-rate taxation increases urban construction — a caveat rather than a challenge: does not contradict the local construction effect, but shows part of a two-rate jurisdiction's advantage over its closest neighbors may be competitive/diversionary rather than purely additive at the regional level, while more distant jurisdictions appear to benefit too.

See Also

• Effects of Split-Rate Taxation on Tax Base (Yang & Hawley, 2022) — the same author's companion study of tax-base effects within the adopting jurisdiction
• Can the Land Tax Help Curb Urban Sprawl? (Banzhaf & Lavery, 2010)
• A Markov Chain Monte Carlo Analysis of the Effect of Two-Rate Property Taxes on Construction (Plassmann & Tideman, 2000)
• Split-rate taxation increases urban construction
• Split-Rate Taxation

Sources

1. Zhou Yang (2024), "The Spillover Effects of Land Value Taxation: How Can It Affect Your Neighbors' Job Growth?" The Journal of Real Estate Finance and Economics, online 5 September 2024. Publisher/DOI (paywalled) — used for the published citation and confirmation this is the peer-reviewed version of the working paper below.
2. Zhou Yang (2015), "The Spillover Effects of the Two-Rate Property Taxes in Pennsylvania: A Zero-Sum Game or a Win-Win Game?" Lincoln Institute of Land Policy Working Paper WP15ZY1. Free PDF — used directly (full text read) for all reported coefficients, the spatial-distance-ring methodology, robustness checks, and the "zero-sum game or a win-win game" framing quoted above; this is the working-paper precursor of source 1.
3. H. Spencer Banzhaf & Nathan Lavery (2010), "Can the Land Tax Help Curb Urban Sprawl? Evidence from Growth Patterns in Pennsylvania," Journal of Urban Economics 67(2) — wiki summary — cited by Yang (2015) for the differenced-dependent-variable-with-fixed-effects ("difference-in-difference-in-differences") identification logic this paper also relies on.
4. Zhou Yang & Zackary B. Hawley (2022), "Effects of Split-Rate Taxation on Tax Base," Public Finance Review 50(6) — wiki summary — the same author's companion study of within-jurisdiction tax-base effects, used for comparison/contrast.