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

  • Ross, Justin M.
  • Yan, Wenli

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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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. J. Barkley Rosser, 2009. "Introduction," Chapters, in: Handbook of Research on Complexity, chapter 1 Edward Elgar.
  2. 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, vol. 14(4), pages 596-608, November.
  3. Byron F. Lutz, 2008. "The connection between house price appreciation and property tax revenues," Finance and Economics Discussion Series 2008-48, Board of Governors of the Federal Reserve System (U.S.).
  4. 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.
  5. Ladd, Helen F., 1991. "Property tax revaluation and tax levy growth revisited," Journal of Urban Economics, Elsevier, vol. 30(1), pages 83-99, July.
  6. 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, vol. 19(3), pages 568-73, August.
  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, vol. 40(2).
  8. Lind, Jo Thori, 2007. "Fractionalization and the size of government," Journal of Public Economics, Elsevier, vol. 91(1-2), pages 51-76, February.
  9. Doerner, William M. & Ihlanfeldt, Keith R., 2011. "House prices and city revenues," Regional Science and Urban Economics, Elsevier, vol. 41(4), pages 332-342, July.
  10. 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.
  11. John L. Mikesell, 1980. "Property Tax Reassessment Cycles: Significance for Uniformity and Effective Rates," Public Finance Review, , vol. 8(1), pages 23-37, January.
  12. 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.).
  13. Hamilton, Bruce W., 1983. "The flypaper effect and other anomalies," Journal of Public Economics, Elsevier, vol. 22(3), pages 347-361, December.
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