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Residential Property Taxation: Is Periodic Reassessment worth it?

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  • John Merrifield

    (The University of Texas at San Antonio)

  • Yong Bao

    (The University of Texas at San Antonio)

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    Abstract

    Most of the states that tax residential property determine the tax base through a periodic reassessment (PR) of properties based on sales of comparable properties. Two states replaced the PR approach with assessment based on acquisition value (AV = purchase price) with an annual inflation adjustment. Many others continue to periodically reassess, but have directly or indirectly set low caps on the growth rate of taxable value. The research tested the null hypothesis that the PR approach yields no more taxable residential value than an AV approach, which costs less to administer and eliminates the threat that rising property values could evict someone from their home. The econometric analysis of an unbalanced panel from 31 states pver the period 1979-2005 yielded mixed results. Consisten with conventional wisdom, terminating PR in favor of an AV approach can have a significant short-run impact. But the short-rum finding is not robust. It is driven by the data for Oregon, and disappears or weakens significantly if the Oregon data are adjusted for for Oregon's late-90's assessment rollback. Consistent with the presence of long-term offsetting factors, subsituting AV for PR has a smaller or zero effect on taxable residential property value in the long-run. The regressions omitting Oregon failed to reject the null hypothesis that assessment based on PR does not yield significantly more taxable value than an AV approach, or approximations of an AV approach through a cap on assessed value growth.

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    File URL: http://business.utsa.edu/wps/eco/0003ECO-091-2007.pdf
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    Bibliographic Info

    Paper provided by College of Business, University of Texas at San Antonio in its series Working Papers with number 0003.

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    Length: 25 pages
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    Handle: RePEc:tsa:wpaper:0003

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    Related research

    Keywords: Periodic reassessment; acquisition value; residential property tax;

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    References

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    1. Earl D. Benson & Arthur L. Schwartz, Jr., 1997. "Vertical Equity in the Taxation of Single Family Homes," Journal of Real Estate Research, American Real Estate Society, vol. 14(3), pages 215-232.
    2. Strumpf, Koleman S., 1999. "Infrequent Assessments Distort Property Taxes: Theory and Evidence," Journal of Urban Economics, Elsevier, vol. 46(2), pages 169-199, September.
    3. Wansbeek, Tom & Kapteyn, Arie, 1989. "Estimation of the error-components model with incomplete panels," Journal of Econometrics, Elsevier, vol. 41(3), pages 341-361, July.
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    6. Oates, Wallace E, 1969. "The Effects of Property Taxes and Local Public Spending on Property Values: An Empirical Study of Tax Capitalization and the Tiebout Hypothesis," Journal of Political Economy, University of Chicago Press, vol. 77(6), pages 957-71, Nov./Dec..
    7. Wallace, T D & Hussain, Ashiq, 1969. "The Use of Error Components Models in Combining Cross Section with Time Series Data," Econometrica, Econometric Society, vol. 37(1), pages 55-72, January.
    8. Baltagi, Badi H. & Chang, Young-Jae, 1994. "Incomplete panels : A comparative study of alternative estimators for the unbalanced one-way error component regression model," Journal of Econometrics, Elsevier, vol. 62(2), pages 67-89, June.
    9. Fuller, Wayne A. & Battese, George E., 1974. "Estimation of linear models with crossed-error structure," Journal of Econometrics, Elsevier, vol. 2(1), pages 67-78, May.
    10. Fischel, William A., 1989. "Did Serrano Cause Proposition 13?," National Tax Journal, National Tax Association, vol. 42(4), pages 465-73, December.
    11. Mehta, Shekhar & Giertz, J. Fred, 1996. "Measuring the Performance of the Property Tax Assessment Process," National Tax Journal, National Tax Association, vol. 49(1), pages 73-85, March.
    12. Swamy, P A V B & Arora, S S, 1972. "The Exact Finite Sample Properties of the Estimators of Coefficients in the Error Components Regression Models," Econometrica, Econometric Society, vol. 40(2), pages 261-75, March.
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