Are Property Taxes in New Jersey Efficient? A Modern Tiebout’s Hypothesis Approach: Examining School Quality on The Housing Market

Abstract

In 1875, New Jersey passed a constitutional amendment requiring a thorough and efficient education for all public schools that still holds today. Even though New Jersey has one of the strongest education systems in the United States, it still faces major performance gaps between districts, especially in low-income areas. This paper will examine the impact of school quality on homebuyers throughout the Garden State and the relationship of those variables with tax rates. Applying Charles Tiebout’s theory of local expenditures as a backbone in my analysis, I conduct a two-stage least square regression using geographical, school, and housing statistics from 264 school districts from 2015-2019 to find that property taxes are in fact capitalized, and an increase in the value of local public goods also raises property values. However, I also demonstrate that low-income districts called Abbott districts spend resources inefficiently, even when controlling for budgets and the number of students, among other measures. Specifically, the student-to-teacher and student-to-counselor ratios are 1.16 and 156 more students higher for Abbott schools respectively. As a result, New Jersey is not adhering to its constitution by failing to provide students in these districts with an adequate education.