Property Tax Salience and Payment Delinquency
AbstractDespite only modest supporting evidence, shocks to households' personal finances are commonly cited as one of the principal causes of homeowner defaults. In this paper, I investigate the extent to which different component sources of annual variation in property tax obligations influence the probability and magnitude of property tax delinquency are likely precursor to mortgage default. Under Michigan's system of property tax limitations, rational homeowners should readily anticipate changes in tax liability, making such changes an unlikely cause of delinquency, regardless of the underlying source. Looking at tax payment records for the city of Ann Arbor, Michigan for the period 2006-2009, I instead find that a household's probability of making late payments, the tardiness of their payments, the amount by which they underpay, or the amount of their resulting interest penalties are all generally greater when changes in property taxes arise through less salient features of the Michigan tax system. This suggests that homeowners, especially new homebuyers, do not rationally anticipate their future tax bills and may instead bear a heavy cost for their inattention to the property tax system.
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Bibliographic InfoPaper provided by LeBow College of Business, Drexel University in its series School of Economics Working Paper Series with number 2012-9.
Length: 31 pages
Date of creation: 01 Nov 2012
Date of revision:
property taxes; delinquency; default; tax salience; limited attention;
Find related papers by JEL classification:
- D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
- D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations
- H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
- H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies
- H31 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Household
This paper has been announced in the following NEP Reports:
- NEP-ACC-2013-07-28 (Accounting & Auditing)
- NEP-ALL-2013-07-28 (All new papers)
- NEP-PUB-2013-07-28 (Public Finance)
- NEP-URE-2013-07-28 (Urban & Real Estate Economics)
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