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Fiscal Illusion From Property Reassessment? An Empirical Test Of The Residual View

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  • Ross, Justin M.
  • Yan, Wenli

Abstract

The property tax rate, according to the residual view, is simply the ratio of levies over total assessed values, so that growth in property values is irrelevant to the revenue raised. Critics of this view claim instead that fiscal illusion allows policymakers to take advantage of increased assessed values to raise additional revenue by not fully reducing the tax rate. Using 2000–2008 data from Virginia cities and counties, this paper tests the competing claims by studying a natural experiment in the timing of mass reappraisals. Our findings provide partial support for the fiscal illusion critique of the residual view.

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Bibliographic Info

Article provided by National Tax Association in its journal National Tax Journal.

Volume (Year): 66 (2013)
Issue (Month): 1 (March)
Pages: 7-32

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Handle: RePEc:ntj:journl:v:66:y:2013:i:1:p:7-32

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  1. Jo Thori Lind, 2003. "Fractionalization and the Size of Government," CESifo Working Paper Series, CESifo Group Munich 1000, CESifo Group Munich.
  2. Ladd, Helen F., 1991. "Property tax revaluation and tax levy growth revisited," Journal of Urban Economics, Elsevier, vol. 30(1), pages 83-99, July.
  3. Byron Lutz & Raven Molloy & Hui Shan, 2010. "The housing crisis and state and local government tax revenue: five channels," Finance and Economics Discussion Series, Board of Governors of the Federal Reserve System (U.S.) 2010-49, Board of Governors of the Federal Reserve System (U.S.).
  4. Bloom, Howard S. & Ladd, Helen F., 1982. "Property tax revaluation and tax levy growth," Journal of Urban Economics, Elsevier, vol. 11(1), pages 73-84, January.
  5. John H. Y. Edwards, 1986. "A Note on the Publicness of Local Goods: Evidence from New York State Municipalities," Canadian Journal of Economics, Canadian Economics Association, Canadian Economics Association, vol. 19(3), pages 568-73, August.
  6. Hamilton, Bruce W., 1983. "The flypaper effect and other anomalies," Journal of Public Economics, Elsevier, Elsevier, vol. 22(3), pages 347-361, December.
  7. Stine, William F., 2010. "Estimating the Determinants of Property Reassessment Duration: An Empirical Study of Pennsylvania Counties," Journal of Regional Analysis and Policy, Mid-Continent Regional Science Association, Mid-Continent Regional Science Association, vol. 40(2).
  8. John L. Mikesell, 1980. "Property Tax Reassessment Cycles: Significance for Uniformity and Effective Rates," Public Finance Review, , , vol. 8(1), pages 23-37, January.
  9. Doerner, William M. & Ihlanfeldt, Keith R., 2011. "House prices and city revenues," Regional Science and Urban Economics, Elsevier, Elsevier, vol. 41(4), pages 332-342, July.
  10. Byron F. Lutz, 2008. "The connection between house price appreciation and property tax revenues," Finance and Economics Discussion Series, Board of Governors of the Federal Reserve System (U.S.) 2008-48, Board of Governors of the Federal Reserve System (U.S.).
  11. Melville L. McMillan & W. Robert Wilson & Louise M. Arthur, 1981. "The Publicness of Local Public Goods: Evidence from Ontario Municipalities," Canadian Journal of Economics, Canadian Economics Association, Canadian Economics Association, vol. 14(4), pages 596-608, November.
  12. Fisher, Ronald C., 1982. "Income and grant effects on local expenditure: The flypaper effect and other difficulties," Journal of Urban Economics, Elsevier, vol. 12(3), pages 324-345, November.
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Cited by:
  1. Facchini, Francois, 2014. "The determinants of public spending: a survey in a methodological perspective," MPRA Paper 53006, University Library of Munich, Germany.

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