Differentiated property tax and urban sprawl in Italian urbanized area

City’s core and suburbans tax differentials can affect sprawl within an urban area. We empirically address this issue by analyzing the pattern of growth of 72 Italian urbanized areas. As a novelty, we investigate the causes of the emerging land development pattern. Our results show that density of urban area declines in response to an increase in the city’s core property tax rate. We find that this effect is due to changes in dwelling size. By contrast, density of urban area significantly rises when suburbans property tax rates increase, making the urban area more compact. This effect is attributable to changes in the improvement effect of property taxation.