Land-use zoning in a local economy with optimal property taxes and public expenditures

A three-sector, open-city framework is used to study the impact of changes in land-use zoning on a local economy. In addition to the customary direct supply effects, a rezoning prompts changes in local property tax rates, public expenditures, and the location decisions of households and firms. Simulations are used to trace these general equilibrium adjustments. The final effects of a residentialto-commercial rezoning on crucial local economic variables, including residential and commercial site rents, property tax rates and the mix of public services, may contrast sharply with popular expectations based solely on a partial equilibrium analysis.