Residential Property Tax Research Articles

Growth and Residential Property Taxes: A Model for Estimating Direct and Indirect Population Impacts

The popular hypothesis that population growth causes property taxes to increase, particularly for homeowners, has led to calls for tax limitations and population growth management at the state and local levels. If, in fact, population growth does increase property taxes, particularly those of the homeowner/voter, then public officials have an interest in how and why this increase occurs. With this knowledge they can, if they wish, change the property tax system so as to alter the tax impact of population growth. In, on the other hand, population growth does not under the present legal structure affect local property taxes, public officials can tell those who would control population growth that reducing the rate of growth is not likely to affect their taxes. More importantly, a clear understanding of the relationship between population and property taxes should illuminate other possible causes, perhaps indirectly related to population growth, of the rise in homeowner's property tax bills. This paper is an attempt to determine the extent to which population affects single family residential property taxes and the mechanisms through which such effects are transmitted. Because a homeowner's property tax bill is the product of a tax rate and an assessed value, the possible influence of population on each of these variables and their underlying determinants is explored. For its theoretical base, the model developed in the paper draws on recent attempts to model local fiscal behavior. This literature, summarized by Deacon (1977a, 1977b) and Hirsch (1977), increasingly uses public choice theory to explain the demand for and provision of collectively provided goods and services. Fox and Sullivan (1980) explicitly used this theoretical base in their empirical study of the expenditure impacts of population growth.1 This paper extends the populationlocal fiscal behavior models in two ways. First, it broadens the scope of such models. Whereas previous studies have generally focused on the determinants of

Budget Impact and Voter Response To Tax Limitation Referenda

This article analyzes the determinants of voter behavior on three tax limitation referenda on the ballot in Michigan in 1978. A framework based on the demand for and supply of state and local government output is used in analyzing county level cross-sectional data. Many significant relationships are demonstrated between supply and demand variables and voter response to an incremental tax limitation proposal. A somewhat similar outcome is found for a proposal which would have completely reformed elementary and secondary school finance. However, for a proposal which would have slashed property taxes, there were few statistically significant relationships between voting behavior and the independent variables. This may have been due to the great uncertainty which surrounded this proposal's implications. For two of the three proposals, the level of residential property taxes has a significant impact on voter response. However, in no case was the rate of change in these taxes found to influence voter behavior. The results generally indicate the appropriateness of analyzing tax limitation referenda in the traditional context of demand for government output, when the effects of the referenda are relatively clear.

Labor mobility and the incidence of the residential property tax

This paper analyzes the incidence of the residential property tax in an economy with two communities. Workers are perfectly mobile so that their utility levels are equal in the two communities in equilibrium. The property tax is modeled as an ad valorem tax on housing services.

Property Tax Circuit Breakers Reconsidered: Continuing Issues Surrounding a Popular Program

Abstract. Property tax circuit‐breaker programs—provision for tax relief for selected groups of the population believed to be adversely affected by rising state and local taxation on residences—exist in 30 states and the District of Columbia. They are still in controversy. The best available evidence on some of the basic issues being debated is considered in an effort to evaluate their policy implications. The device is found to be desirable and, if the residential property tax were regressive in certain respects, a move in the direction of tax equity. “Current income” is found more useful in determining eligibility; net worth tests would be difficult to apply. Relief for tax burdens above an acceptable share of household income is preferable to one based on a sliding scale formula. However, the tendency dearly is to liberalize benefits. This creates the danger of eroding the tax base.

An Appraisal of Residential Property Tax Regressivity

The findings of this study indicate, contrary to the recent claims by Aaron [1, 2], among others, that the real estate tax on residential properties is regressive. Using a data base from a sample of household observations for FHA–HUD 203–Program single–family market sales for counties contained in five major United States Standard Metropolitan Statistical Areas (SMSAs), the statistical analyses suggest that the degree of observed regressivity varies significantly across counties and is the result of two forces. First, in many counties, the poor and de facto inequitable assessment practices are the principal causes for property tax regressivity. Second, in some counties that exhibit relatively equitable and uniform assessment practices, the end product appears to be an income regressive property tax. Hence, the property tax in these counties may be intrinsically (slightly) regressive. However, in general, if there were uniform administration of the property tax, it would be (slightly) progressive.

The long-run effects of a residential property tax and local public services

The long-run effects of a residential property tax and local public services are analyzed in the context of an urban spatial model. An endogenous labor market allows the local wage rate to adjust, in conjunction with residential and business land prices, in response to local fiscal changes.

Residential Property Tax Relief in Ontario

Residential Property Tax Relief in Ontario

Taxation of Residential Property in New York City: The Sources of Differential Treatment

Intrajurisdictional variations in the effective residential property tax are analyzed for New York City. Significant variation is observed by type of structure, by borough, by income quartiles, and over time. Cross‐sectional regression equations indicate that effective rates tend to vary inversely with income and positively with the proportion of poverty households and building size. Market values, on the other hand, tend to vary inversely with poverty households and building age, and positively with income and building size. Over time, effective tax rates show a strong inverse relationship with the rate of inflation.

Capitalization of Residential Property Taxes: An Empirical Study

THE assumption that taxes are capitalized plays a central role in public finance theory. It would seem that the taxation of residential property offers a good opportunity to test this assumption empirically. One need simply investigate whether or not, after holding constant housing and land characteristics, a house with higher taxes sells for a lower price. Indeed there have been many attempts in the literature to estimate the extent to which -residential property taxes are capitalized.' Many of these studies have focused on differences in tax rates existing in neighbouring communities, and have attempted to determine whether in such a setting property values are inversely related to tax rates. The major difficulty with this approach, in which tax rates in different communities are compared, is that government expenditures may also differ from one location to another and may also be capitalized in property values. It is therefore necessary to hypothesize that property values depend on both taxes and expenditures, in which case the relationship comes close to being an identity, with average property values related to average tax rates and average levels of government expenditures.2 It is not surprising that tax rates are found in these cases to be negatively, and government expenditures positively, related to property values. However, it is not clear (two-stage least squares notwithstanding) how much of these effects can be attributed to capitalization and how much is due to the tautological nature of the problem. In this paper we focus on individual residential property values in one municipality only, and thus avoid the major problem discussed above since the level of general government services is the same for all property owners.3'4 Further, restriction to one locale does not imply that effective tax rates will be the same on all houses even though the mill rate is, of course, the same. As is the case in most cities there are wide variations in the ratio of assessed value to market value for residential properties, (even within homogeneous housing categories) thus resulting in differences in taxes paid for basically identical housing units.5' 6 Consequently, we hypothesize a relationship of the form

Real Property Taxes, Local Public Services, and Residential Property Values

Recent empirical work on the effects of property taxes on residential property values has suggested that much of the tax is capitalized. Oates [6], in a cross-sectional analysis of fifty-three residential communities in north-eastern New Jersey, concluded that a substantial portion of the residential property tax is capitalized in the form of depressed property values. Orr [8], in studying thirty-one communities in the Boston area, reached a similar conclusion for the effects on property values of property tax differentials among communities. This evidence supports the hypothesis that property taxes are not shifted but are borne largely by property owners at the time the tax is levied. The theory of tax incidence suggests that taxes on land cannot be shifted. Under competitive conditions, shifting occurs only if the quantity of land supplied is decreased when the tax is imposed.' If the supply of land is perfectly inelastic as typically assumed, the property tax will be capitalized and the value of the land will decrease. If existing landowners attempt to maintain the pre-tax price of land (assuming the supply of land is perfectly inelastic), the result will be excess land supplied and consequent downward pressure on land prices until the tax is fully capitalized. Even if the tax on land is fully capitalized, however, an increase in property taxes will not necessarily *The authors thank Dale M. Hoover and an anonymous referee of this journal for some helpful suggestions. Paper No. 3753 of the Journal Series of the North Carolina State University Agricultural Experiment Station, N.C. 'For a discussion of the theory of incidence of the property tax, see Netzer [4]. decrease land values. The proceeds of the tax may be used for public services, which may serve to increase land values and offset the tax capitalization. Property taxes on land improvements such as residential housing may be shifted forward. The taxes will increase costs causing capital to flow to alternative uses until the return to capital in housing in the long run rises to that available on other investments. If the supply of capital to construction is responsive to the lower return, the tax will, in the long run, reduce the supply of housing, thereby bidding up its price. For owner-occupied housing structures, however, the annual increment to the supply is usually a small fraction of the total housing stock. In the case of residential housing, therefore, structures might be considered to be inelastically supplied in the short run. Hence, one might argue that it is less likely that shifting will occur in the short-run and consequently the tax will tend to be capitalized into lower property values. However, the actual short-run elasticity of supply of residential construction remains a parameter to be determined empirically. The incidence of the residential property tax in the long run depends on the long-run elasticity of supply of housing which is dependent on both the supply of land and the supply of structures.

Income Tax Credits to Reduce the Regressivity of State‐Local Tax Systems

AT LEAST FOURTEEN STATES and the District of Columbia currently offer some of their residents refundable credits against personal income taxes designed to reduce the regressivity of their state-local tax systems. This paper reviews existing credit plans and their economic effectiveness, and offers various suggestions for improvement. Credits for sales taxes are discussed in Part II and property tax credits in Part III. These credit plans are an outgrowth of a number of state tax system studies which uniformly demonstrated that state sales and property taxes are most burdensome on that segment of the population least able to pay (1). That is, both sales and property taxes are regressive with respect to current income. This relationship is accepted without reservation for the sales tax since the percentage of family income spent on items subject to the general sales tax has been shown to decrease as income increases. This occurs both because of proportionately higher saving among higher income families and because of the lack of sales taxes on many services which are predominantly purchased by those with higher incomes. Although the residential property tax is regressive with respect to current income, several recent studies have shown it to be approximately proportional to permanent income. This result is explained by the infrequency with which individuals change housing, with the result that many families consume either more or less housing than is justified by their current income (2). Many families with temporarily low income do experience cash flow problems which make property tax payments difficult. For this reason alone, some form of property tax relief for those with low current incomes may be justified (3). In addition, for those with permanently low incomes, the property tax does constitute a major outlay which may not be considered equitable by society. This is particularly true of the elderly poor who may own a home but have insufficient cash income to buy food after paying their taxes. Individuals who rent tend to be worse off in that they do not even own a home as an asset. Both property and sales tax credit plans have been referred to as little negative income taxes, since in most cases the taxpayer is eligible for a refund if his credit is larger than his income tax liability. If a person pays

Incidence of the Residential Property Tax in Nine Counties of New York State

This paper is concerned with the incidence of the residential property tax on ownerand renter-occupied housing units in nine counties of New York State. The counties which comprise the study area include the five boroughs of New York City and the suburban communities of Nassau, Rockland, Suffolk, and Westchester. These counties were chosen to determine whether any differences exist in the incidence of the property tax between predominantly urban counties where most housing units are renter-occupied and suburban areas where most homes are owner-occupied. The methodology employed follows closely that used by Emanuel Tobier in Appendix E of the Economics of the Property Tax by Dick Netzer.1 Estimates are made of the incidence of the property tax on owner-occupied and renter-occupied units separately, and then these two statistics are combined to obtain a composite picture of the tax in? cidence. All three estimates prove to be markedly regressive when considered on a current income basis, which is in conformity with the results of similar studies.2 The income inelasticity of housing has been indicted as the major cause of this regressivity and decreased investment as a major effect. This study makes no attempt to measure the incidence of the property tax when a permanent income hypothesis is used, nor does it attempt to measure the progressivity of government expenditures which are financed by and benefit those who pay the property tax. Including these two concepts would probably decrease the regressivity of this tax, and in the case of a lifetime income basis make the tax proportional to in? come.3 In order to temper the effects of regressivity, a progressive property tax is proposed which would be a function of both the assessed valuation of the home and the income of the occupant. It is hoped that such a rate would shift the burden of the tax to those who are most able to pay and induce lower and middle income families to invest in homes. This progressive rate structure is also proposed in realization of the fact that 197