Association for Public Policy Analysis & Management

Although the property tax has remained a major revenue source for school districts in America, property values and thus property tax revenues have shrunk in recent years, especially since the recent economic recession. School districts have therefore been more likely to tap into other revenue sources. Currently four states (Iowa, Kentucky, Ohio and Pennsylvania) allow school districts to levy local income taxes voluntarily. In Ohio, school district income taxes have become popular. The number of school districts adopting local income taxes in Ohio has been steadily increasing over the last decades and now represents approximately 32 percent of total school districts. One potential unintended consequence of the school district income tax is that it reduces property values, which also weakens a school district’s property tax base. This potential unintended effect has received little attention in the current literature. This study seeks to fill this gap in the literature using parcel- and school district-level data from Ohio. Specifically, we estimate the effect of a change in school districts’ income tax rates on home sale prices.