"Estimating Impacts of a Property Tax Reform": Reply

Abstract

Michael Bell has made a number of specific criticisms of my recent paper as well as raising several more general issues. First, Bell points out that my model is based on the residual approach to land valuation, an approach commonly used for reassessing incomeproducing property but not residential and agricultural property. He therefore concludes that my land value equation [1] will not apply equally well to these latter land uses. As a practical matter, the number of properties classified as farm land for tax purposes in my study was quite small, 22 out of a total of over 8,400 properties. Residential properties were, of course, much more important. Tables 1 and 2 below indicate the effects of a changeover to a site value tax on various properties grouped according to AC17 codes, a classification indicating the current legal status of the property for tax purposes.' This breakdown gives some idea of the different groups of properties to which different assessment procedures are often applied. The use of the land value equation [1], however, is not necessarily invalid just because assessors are known to use assessment methods other than the residual approach for some types of land. What must be determined is the extent to which the proposed model can be used to approximate the market value of land after implementation of property tax changes, given current land and improvement assessments.2 The model should, of course, be satisfactory in predicting assessment values after the tax change in cases where assessors use the residual approach to land valuation. When other assessment methods are used (both before and after the tax change), the accuracy of predictions based on the simple land valuation model is uncertain. One possible approach would be to compare the predictions with those from alternative models. These models need not be re-