Does residential property taxation affect the quality of municipal welfare services? Evidence from the Norwegian school system

Abstract

This master thesis explores the incentive effect of residential property taxation on the quality of welfare services provided by the Norwegian municipalities, where the quality of welfare services are measured by school results. Norway is a wellsuited case to investigate this effect, as it is possible to compare municipalities with and without residential property taxation. We build our analysis on the theoretical framework of Brennan and Buchanan (1978), Glaeser (1996) and Hoxby (1999), and follow the empirical method of Fiva and Rønning (2008). We use a two stage least squares approach in order to estimate the causal effect of residential property taxation on school results. In contrast to the findings in previous studies, our main results suggest that there are no effect of residential property taxation on school results. This implies that the findings of Fiva and Rønning (2008) are not robust to a number of factors that is implemented in the analysis of this master thesis. The underlying hypothesis of the analysis is that when residential property tax is levied, the inhabitants will demand more from their elected local representatives in the form of a higher voter participation rate. Hence, the representatives have an incentive to improve the quality of the welfare services provided in their municipality. Thus, we perform a supplementary analysis that investigate this relationship. Our findings suggest that there are no effect of residential property taxation on the voter participation rate in the local election. We find that these results adds to the robustness of our main findings, that residential property taxation does not affect school results in Norway.