We study the effects of property taxes on housing markets and municipalities. Despite a broad and comprehensive literature on the incidence of property taxes, there is still neither an empirical nor a theoretical consensus how to answer the question on who bears the burden of the property tax. We exploit a rich panel data set containing the universe of German municipalities to analyze whether higher property taxes—one of the major revenue sources for local authorities—will be borne by capital owners and landlords or to what extent these taxes might be shifted onto tenants, leading to higher rents.