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Previous articleNext article FreeSummaries of ArticlesPDFPDF PLUSFull Text Add to favoritesDownload CitationTrack CitationsPermissionsReprints Share onFacebookTwitterLinked InRedditEmailQR Code SectionsMoreHomestead Exemptions, Heterogeneous Assessment, and Property Tax ProgressivityKeith Ihlanfeldt and Luke P. RodgersHomestead exemptions are ostensibly intended to reduce the property tax burden of lower-income homeowners by exempting a flat amount of the property value from property taxation. On the other hand, assessment rates tend be lower for higher-priced homes. The opposing effects of progressive (pro-poor) exemptions and regressive (pro-rich) assessments can result in either a regressive or progressive property tax. While most view the property tax as regressive, this will depend on the relative sizes of these opposing effects. Using 2018 data on all single-family homes in Florida, we find that in the majority of counties, the progressive influence of the homestead exemption dominates regressive assessment practices, resulting in an overall progressive property tax. We do so by separately measuring how market values relate to income, how assessment practices relate to market values, and how a homeowner’s tax bill is affected by various tax relief programs. We then explore how progressivity would be affected by modifying current features of the property tax in Florida. For example, many homeowners fail to claim the homestead exemption, particularly in lower-income areas. We estimate that full take-up of this pro-poor benefit can increase progressivity by 10 percent. Reforming assessment practices to proportionally reflect the market value of a house would increase progressivity by 22 percent. Repealing the Tax Cut and Jobs Act’s $10,000 cap on the state and local taxes deduction would not meaningfully affect progressivity of the property tax, although this may not be the case in states with alternative revenue streams (e.g., state income taxes). Finally, the property tax would be less progressive were it not for exemptions for low-income senior residents and the Save Our Homes program, which caps the growth in a property’s assessed value. While improving assessment practices is a common policy proposal and progressive property tax rates are possible, policies that exempt a flat amount from a property’s taxable value, such as the homestead exemption, are currently the most feasible way to increase progressivity in property taxation.Property Tax Compliance and Reverse Mortgages: Using Nudges to Improve the MarketStephanie Moulton, J. Michael Collins, Cäzilia Loibl, Donald Haurin, and Julia BrownThis study tests a way to reduce property tax default among a particularly vulnerable segment of older homeowners — those with a federally insured reverse mortgage. Reverse mortgages allow adults ages 62 and older to borrow against the equity in their homes without an ongoing monthly mortgage payment. For many low-income older people, home equity is a primary source of wealth; reverse mortgages allow them to use this wealth to make ends meet. However, the reverse mortgage market is fairly small — less than 2 percent of eligible homeowners have these loans. One of the challenges to the reverse mortgage market is the risk of borrowers not keeping up with their property tax or homeowner’s insurance. While a reverse mortgage does not require a monthly loan payment, borrowers must maintain the property including making their property tax and insurance payments. Missing payments for property taxes or homeowner’s insurance means these older people are at a higher risk of default, which could mean they lose their home. Foreclosures on these loans are also costly for lenders and local communities.One way to reduce missed property taxes or homeowner’s insurance payments is to send people who have a reverse mortgage a reminder letter. In this study, homeowners with a federally insured reverse mortgage were randomly assigned to receive a series of mailed letters reminding them of their responsibilities to pay their property taxes and homeowner’s insurance, as well as the consequences of having their loan called due and payable for nonpayment. We find that the reminder letters reduce the risk of defaulting on property taxes or homeowner’s insurance by about one-third.A simple set of reminder letters had about the same effect on missed payments as a more recent federal policy that limited how much equity older people could borrow from their home, which structurally creates a cushion for missed payments. Because home equity can be a critical support for older people, preserving access to as much equity as possible while preventing risk of default is an important policy goal.Taxing the Digital Economy: Investor Reaction to the European Commission’s Digital Tax ProposalsDaniel Klein, Christopher A. Ludwig, and Christoph SpengelWe examine the European Commission’s proposals on the taxation of the digital economy published on March 21, 2018. The first proposal suggests the introduction of an interim tax of 3 percent on gross revenues from certain digital services. The second proposal lays down the rules for taxing corporate profits attributable to a significant digital presence.We employ an event study design to analyze the capital market reaction to the proposed introduction of the digital tax measures. In our two-day event window starting on the day of the proposals’ release, we find a significant reduction in firm value of 222 digital firms, which are likely to be affected. The negative abnormal market reaction of −0.692 percent translates to a market value decrease of digital corporations by at least 52 billion euros, 40 percent of which is attributable to US-based corporations. Our main result has three central implications: first, it suggests that investors, on average, perceive the increased likelihood of the introduction of digital tax measures as negative news for firms’ future profitability and investors do not anticipate that firms are able to easily avoid the additional tax; second, our evidence implies that investors expect that firms will not be able to pass through all of the additional tax expenses to labor or customers; third, the economic magnitude of the reaction implies that the capital market does not expect these tax measures to be repealed in the short term.Our cross-sectional analyses reveal that the market is efficient in evaluating the effect of the digital tax proposals, differentiating its response depending on firms’ characteristics when appropriate. We find that the negative abnormal return is significantly stronger for firms that are more tax-avoiding and for firms that have higher profit-shifting potential. This result suggests that firms receive a market premium for tax avoidance and that the premium diminishes with the proposed tax measures.Overall, the investor reaction reflects the intention of the European Commission’s proposals to secure tax revenues and extract location-specific rent, suggesting that the capital market expects that the proposals’ objectives are achievable. While there is an ongoing debate on how to adjust the international corporate tax framework to the digital world, empirical evidence on the effects of the proposed adjustments is scarce. Our study contributes to the recent call for further research on the proposed policies of taxing the digital economy and helps to holistically evaluate the effects of introducing digital tax measures.Market Responses To Voter-Approved DebtJinhai Yu, Xin Chen, and Mark D. RobbinsThe US local public finance features a vibrant municipal bond market that consists of a primary market where local governments issue new debt and a secondary market where investors trade existing debt. The secondary bond market is often considered as relatively inefficient in absorbing relevant information in bond pricing due to, among other factors, infrequent information disclosure by government bond issuers. The capacity for the secondary bond market to process relevant information is a critically important policy issue because it reflects allocational efficiency in the public capital market. In 2019, the Government Accounting Standards Board (GASB) actively considered new guidelines that could require monthly, quarterly, or semiannual financial reporting.We probe the question of how the secondary market responds to a particular type of information related to government issuers, that is, the passage of bond referenda. US local governments in many states must pass bond referenda to issue new bonds. Voter approval of new debt, or the bond authorization, signals potential increases in future debt and capital investments, and thus can convey a crucial piece of information for the secondary bond market investors. We focus on bond referenda of school districts, cities, and counties in Texas between 2005 and 2016. Government credit risk is proxied by the average bond yields of existing debt. To address the empirical challenge of endogeneity of bond authorization to credit risk, we adopt a regression discontinuity (RD) design, a quasiexperiment method widely used in the setting of local bond referenda.We find some evidence that bond referenda passage increases the average bond yields in the subsequent 13 months for school districts. Specifically, one standard deviation increase in authorized debt per capita causes bond yields to increase by approximately 9.9–22.5 basis points in the subsequent 12 months. Nonetheless, we do not find such impact for cities and counties. The null impact for cities and counties must be interpreted with caution because it may result from a small sample size and local statistical power. Moreover, due to the local nature of the RD estimates, the findings should not be extrapolated to bond referenda that pass by large margins.Overall, the findings suggest that the secondary municipal bond market responds to the information of bond referenda passage by the original government issuers. This has important and timely policy implications. At a minimum, it indicates that the secondary bond market investors take notes when local government issuers signal new impending debt. This suggests some market disciplinary effects because the market responses may place pressure for local governments (planning to) issue more debt. More broadly, for the information efficiency of the secondary bond market, the finding shows both prospects and pitfalls to fix. On the one hand, it supports the notion of a certain level of market efficiency for the secondary bond market. On the other hand, given the relative weak market responses, it suggests that increase in financial information disclosure in the secondary market, as considered by GASB, may be well warranted. Previous articleNext article DetailsFiguresReferencesCited by National Tax Journal Volume 75, Number 1March 2022 Published for: The National Tax Association Article DOIhttps://doi.org/10.1086/719692 Views: 681Total views on this site © 2022 National Tax Association. All rights reserved.PDF download Crossref reports no articles citing this article.