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Property Tax Salience and Payment Delinquency

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  • Bradley, Sebastien

    ()
    (Department of Economics & International Business LeBow College of Business Drexel University)

Abstract

Despite 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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File URL: http://dl.dropboxusercontent.com/u/162210677/RePEc/drx/wpaper/LeBow%20College%20of%20Business%20Working%20Paper%202012-9.pdf
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Bibliographic Info

Paper provided by LeBow College of Business, Drexel University in its series School of Economics Working Paper Series with number 2012-9.

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Length: 31 pages
Date of creation: 01 Nov 2012
Date of revision:
Handle: RePEc:ris:drxlwp:2012_009

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Web page: http://www.lebow.drexel.edu/
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Related research

Keywords: property taxes; delinquency; default; tax salience; limited attention;

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  1. Congdon, William J. & Kling, Jeffrey R. & Mullainathan, Sendhil, 2009. "Behavioral Economics and Tax Policy," National Tax Journal, National Tax Association, vol. 62(3), pages 375-86, September.
  2. O'Sullivan,Arthur & Sexton,Terri A. & Sheffrin,Steven M., 1995. "Property Taxes and Tax Revolts," Cambridge Books, Cambridge University Press, number 9780521461597.
  3. Kenneth P. Brevoort & Cheryl R. Cooper, 2010. "Foreclosure's wake: the credit experiences of individuals following foreclosure," Finance and Economics Discussion Series 2010-59, Board of Governors of the Federal Reserve System (U.S.).
  4. Gamage, David & Shanske, Darien, 2011. "Three Essays On Tax Salience: Market Salience and Political Salience," Berkeley Olin Program in Law & Economics, Working Paper Series qt8gf0b1cj, Berkeley Olin Program in Law & Economics.
  5. S. Dellavigna., 2011. "Psychology and Economics: Evidence from the Field," VOPROSY ECONOMIKI, N.P. Redaktsiya zhurnala "Voprosy Economiki", vol. 5.
  6. Looney, Adam & Kroft, Kory & Chetty, Raj, 2009. "Salience and Taxation: Theory and Evidence," Scholarly Articles 9748525, Harvard University Department of Economics.
  7. Amy Finkelstein, 2009. "E-ZTAX: Tax Salience and Tax Rates," The Quarterly Journal of Economics, MIT Press, vol. 124(3), pages 969-1010, August.
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Cited by:
  1. Alm, James & Hodge, Timothy R. & Sands, Gary & Skidmore, Mark, 2014. "Property Tax Delinquency - Social Contract in Crisis: The Case of Detroit," Working Paper Series 3149, Victoria University of Wellington, Chair in Public Finance.

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