I examine the effects of changes in property taxes, school spending, and tax abatements on residential and business property value growth in Southeast Michigan using data for all 152 communities in the five counties surrounding Detroit over the years 1983 through 2002. The major contribution of this research is to provide new insights about the differential effects of policy changes on property classes. A key challenge in this work is to properly address the potential endogenous relationship between policy changes and property value growth. In this regard, my strategy is to consider the time period immediately before and after the imposition of Proposal A, which resulted in significant differential changes to both property tax rates and school spending for all communities in the state. In addition, I use spatial econometric techniques to account for potential fiscal spillover effects of competitor policy changes on one's own property value growth. In this analysis, I find that: 1) residential property values are more responsive to school spending changes than property tax rate changes; 2) commercial and industrial property values are more responsive to tax rate changes than school spending changes; 3) commercial and industrial property values are more responsive to changes in tax rates than are residential properties; and 4) regional competition plays an important role in property value growth in the Southeast Michigan region. I also examine the degree to which the use of industrial property tax abatements spurs property value growth in the same region surrounding Detroit. My findings show that: 1) localities that offer tax abatements yield statistically significant positive impacts on industrial property value growth; 2) the impacts are larger in high tax than in low tax communities; 3) there are positive spillover effects of tax abatements on residential and commercial property value growth; 4) the fiscal benefits to local government of tax abatements are much smaller than the cost of offering tax abatements; 5) this conclusion is remains intact even when I consider spillover benefits of the tax abatements; and 6) tax abatements offered in competitor communities do not appear to influence own industrial value growth.
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