As a form of tax and expenditure limitations, property tax exemptions result in an utility gap between two groups of population residing in the same community: free-riders who are paying less than they receive and contributors who are paying more than they receive. This utility gap is problematic to municipalities because contributors may exit the city as this gap becomes wider. How do municipalities respond to the increasing amount of property tax exemptions? Using 41 Texas cities data from 2000 to 2016, this dissertation examines how property tax exemptions affect municipalities' fiscal behavior. The analysis indicates that property tax exemptions lead to higher property tax burden, change municipalities' revenue structure, and lead to less capital spending.