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The connection between house price appreciation and property tax revenues

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  • Byron F. Lutz
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    Abstract

    This paper explores two aspects of the connection between property tax revenues and house prices. First, I estimate the elasticity of property tax revenues with respect to house prices. This elasticity does not necessarily equal one as governments may adjust effective tax rates to offset changes in property values. Second, I examine the timing of the relationship. Institutional features of the property tax make it unlikely that changes in house prices will immediately influence tax revenues. The results suggest that the elasticity eventually equals 0.4 and that it takes three years for house price changes to impact tax revenues.

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    Bibliographic Info

    Paper provided by Board of Governors of the Federal Reserve System (U.S.) in its series Finance and Economics Discussion Series with number 2008-48.

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    Date of creation: 2008
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    Handle: RePEc:fip:fedgfe:2008-48

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    Keywords: Housing - Prices ; Property tax;

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    References

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    1. Ladd, Helen F., 1991. "Property tax revaluation and tax levy growth revisited," Journal of Urban Economics, Elsevier, vol. 30(1), pages 83-99, July.
    2. 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.
    3. Anderson, Nathan B., 2006. "Property Tax Limitations: An Interpretative Review," National Tax Journal, National Tax Association, vol. 59(3), pages 685-94, September.
    4. Giertz, J. Fred, 2006. "The Property Tax Bound," National Tax Journal, National Tax Association, vol. 59(3), pages 695-705, September.
    5. Christopher D. Carroll & Misuzu Otsuka & Jirka Slacalek, 2006. "How Large Is the Housing Wealth Effect? A New Approach," Economics Working Paper Archive 535, The Johns Hopkins University,Department of Economics.
    6. Dye, Richard F. & McGuire, Therese J., 1997. "The effect of property tax limitation measures on local government fiscal behavior," Journal of Public Economics, Elsevier, vol. 66(3), pages 469-487, December.
    7. Dye, Richard F. & McMillen, Daniel P. & Merriman, David F., 2006. "Illinois' Response to Rising Residential Property Values: An Assessment Growth Cap in Cook County," National Tax Journal, National Tax Association, vol. 59(3), pages 707-16, September.
    8. Case, Karl E. & Quigley, John M. & Shiller, Robert J., 2012. "Comparing Wealth Effects: The Stock Market versus The Housing Market," Department of Economics, Working Paper Series qt6px1d1sc, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
    9. Preston, Anne E. & Ichniowski, Casey, 1991. "A National Perspective on the Nature and Effects of the Local Property Tax Revolt, 1976-1986," National Tax Journal, National Tax Association, vol. 44(2), pages 123-45, June.
    10. Brennan,Geoffrey & Buchanan,James M., 1980. "The Power to Tax," Cambridge Books, Cambridge University Press, number 9780521233293, April.
    11. Andreas Lehnert, 2004. "Housing, consumption, and credit constraints," Finance and Economics Discussion Series 2004-63, Board of Governors of the Federal Reserve System (U.S.).
    12. Cornia, Gary C. & Walters, Lawrence C., 2006. "Full Disclosure: Controlling Property Tax Increases During Periods of Increasing Housing Values," National Tax Journal, National Tax Association, vol. 59(3), pages 735-49, September.
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    Cited by:
    1. Razvan Vlaicu & Alexander Whalley, 2011. "Do housing bubbles generate fiscal bubbles?," Public Choice, Springer, vol. 149(1), pages 89-108, October.
    2. Byron Lutz & Raven Molloy & Hui Shan, 2010. "The housing crisis and state and local government tax revenue: five channels," Finance and Economics Discussion Series 2010-49, Board of Governors of the Federal Reserve System (U.S.).
    3. Follette, Glenn & Kusko, Andrea & Lutz, Byron, 2008. "State and Local Finances and the Macroeconomy: The High–Employment Budget and Fiscal Impetus," National Tax Journal, National Tax Association, vol. 61(3), pages 531-45, September.
    4. James Alm & Robert D. Buschman & David L. Sjoquist, 2013. "How did foreclosures affect property values in Georgia School Districts?," Working Papers 1308, Tulane University, Department of Economics.
    5. James Alm & Robert D. Buschman & David L. Sjoquist, 2012. "Rethinking Local Government Reliance on the Property Tax," Working Papers 1215, Tulane University, Department of Economics.
    6. Ross, Justin M. & Yan, Wenli, 2013. "Fiscal Illusion From Property Reassessment? An Empirical Test Of The Residual View," National Tax Journal, National Tax Association, vol. 66(1), pages 7-32, March.
    7. Addison-Smyth, Diarmaid & McQuinn, Kieran & O' Reilly, Gerard, 2009. "Quantifying Revenue Windfalls from the Irish Housing Market," Research Technical Papers 10/RT/09, Central Bank of Ireland.
    8. Makowsky, Michael & Sanders, Shane, 2013. "Political costs and fiscal benefits: The political economy of residential property value assessment under Proposition 212," Economics Letters, Elsevier, vol. 120(3), pages 359-363.
    9. 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, vol. 40(2).
    10. Chernick, Howard & Langley, Adam & Reschovsky, Andrew, 2011. "The impact of the Great Recession and the housing crisis on the financing of America's largest cities," Regional Science and Urban Economics, Elsevier, vol. 41(4), pages 372-381, July.

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