Property Taxation as a Determinant of School District Efficiency

Recent theoretical contributions have emphasized the favorable incentive effects of property taxation. The object of this paper is to confront these theories with Norwegian data on student performance. The institutional setting in Norway is well suited to analyzing the effects of property taxation because we can compare school districts with and without property taxation. In addition, we focus on an alternative incentive mechanism - competition between school districts. The empirical results indicate that students in school districts that levy residential property taxes perform better at the national examination than students in comparable school districts. Strategic interaction in school quality is present, but the magnitude of the interaction effect is modest.