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Border Effects in Suburban Land Use

Border Effects in Suburban Land Use. Benoy Jacob University of Colorado – Denver Daniel McMILLEN University of Illinois at Urbana-Champaign. Incentives for Non-Residential Land Use in Suburban Chicago. Suburbs rely heavily on the property tax for revenue (approx. 30%)

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Border Effects in Suburban Land Use

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  1. Border Effects in Suburban Land Use Benoy Jacob University of Colorado – Denver Daniel McMILLEN University of Illinois at Urbana-Champaign

  2. Incentives for Non-Residential Land Use in Suburban Chicago • Suburbs rely heavily on the property tax for revenue (approx. 30%) • Cook County has a classification system. Tax rates are the same for all classes, but assessment rates differ. Current official assessment rates are 25% for commercial/industrial properties and 10% for Class 2 (6 units or fewer) residential. There is no homestead exemption for non-residential properties. Results: effective tax rates are about 3 times as high on average for non-residential. • 1% point of the state’s 6.25% sales tax revenue is returned to the jurisdiction in which the sale takes place

  3. Location Decisions within Suburbs • Access to the transportation network: • Highways and major roads • Rail lines, mainly for industrial land use • Metra Stations • Incentives to locate firms near suburban borders if there are negative externalities associated with non-residential land use. • Do incentives vary by assessed value? Low-priced industrial properties may be particularly likely to be at border locations if they are more likely than high-priced properties to generate negative externalities.

  4. Data and Empirics • All land parcels in suburban Cook County, 2003 assessment file. • Is the density of non-residential land use higher relative to residential land use near suburban borders? Also, relative to Chicago. • Multinomial Logit model of land use – commercial, industrial, relative to Class 2 residential. Controls for access to transportation and municipal fixed effects. • Regressions of assessed values for 2003 on proximity to suburban borders.

  5. Evanston

  6. Evanston Parcels (16,163 parcels)

  7. Commercial (601) and Industrial (148) Parcels

  8. Central Street Metra Stop Industrial Uses: Garage Store Laundry

  9. Some Other Large Suburbs

  10. 90 Cities with at least 10 parcels in each land use

  11. Kernel Densities 1

  12. Kernel Densities 2

  13. Kernel Densities 3

  14. Descriptive Statistics

  15. Multinomial Logit Results: Class 2 Base

  16. Log Assessed Value Regressions: FE for 90 Cities

  17. Spline Predicted Values

  18. Conclusions • Parcels near municipal borders are significantly more likely to be in commercial or industrial use. • Assessed values of properties near municipal borders tend to be much lower for non-residential properties relative to the interior of a municipality. • Borders have a significant influence on the pattern of land use in the Chicago area.

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