Capitalization of Property Tax Relief: Some Equity Implications and Relevance to Policy Design

Abstract

Empirical research in the property tax capitalization literature focuses on estimating the degree to which property tax relief is capitalized into property prices on average; however, economic theory suggests that capitalization will vary across homeowners within a jurisdiction in systematic ways. By focusing on the extent of tax capitalization on average, then, there is a tendency to overlook that in the case of property tax relief, people will benefit differently from the same amount of statutory relief. This paper discusses some determinants of capitalization that contribute to property tax relief being enjoyed differently. Recent empirical research is drawn upon to support the presented arguments, and when such research is not available, analysis of novel data is offered instead. the paper also discusses tax relief policy design strategies for mitigating inequities, to the extent differential outcomes are undesirable.