The effect of property taxes on vacation home growth rates: Evidence from Michigan

The Tiebout model assumes that individuals sort to the jurisdiction which best matches their fiscal preferences. However, there is a paucity of reliable estimates for the impact of tax changes on household mobility. We utilize a state mandated school finance reform and temporal differences in vacation home densities to provide a unique test of this fundamental Tiebout assumption. The results show that changes in property taxes explain a significant amount of the variation in vacation home growth; a 3–4mil decrease in property tax rates is associated with an increase of approximately one vacation home per square kilometer. •Estimate how changes in property taxes affect vacation home market growth•Overcome many of the traditional confounding factors by using Proposal A•Vacation home growth sensitive to within county differences in property tax changes•Magnitude of the effect economically significant in places with elastic land supply