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Intrajurisdictional Capitalization and the Incidence of the Property Tax

In: TAXATION IN THEORY AND PRACTICE Selected Essays of George R. Zodrow

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  • George R. Zodrow

Abstract

Two views dominate the debate about property tax incidence — the “capital tax” or “new” view, under which the tax distorts capital allocation and is borne primarily by capital owners, and the “benefit tax” view, under which the tax is an efficient user charge. Evidence of both interjurisdictional and intrajurisdictional capitalization of property taxes and public services has been argued to provide compelling evidence for the benefit tax view. This paper focuses on the latter — the intra-jurisdictional capitalization effects that underlie what is arguably the most plausible derivation of the benefit tax view of the property tax. The analysis provides a model in which the capital reallocations that characterize the capital tax view induce intrajurisdictional capitalization effects that are generally similar — indeed, in the benchmark case, identical — to those that arise under the benefit tax view, suggesting that empirical evidence supporting such capitalization effects cannot distinguish between the two views. In addition, the analysis shows that these capitalization effects imply that even under the stringent assumptions of the benefit view, the property tax is not a benefit tax for a property-tax-financed increase in local public services; rather, it only becomes a benefit tax for future home purchasers — after the modeled intrajurisdictional capitalization effects occur.

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  • George R. Zodrow, 2019. "Intrajurisdictional Capitalization and the Incidence of the Property Tax," World Scientific Book Chapters, in: George R Zodrow (ed.), TAXATION IN THEORY AND PRACTICE Selected Essays of George R. Zodrow, chapter 16, pages 489-522, World Scientific Publishing Co. Pte. Ltd..
  • Handle: RePEc:wsi:wschap:9789811205149_0016
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    More about this item

    Keywords

    Taxes; Taxation; Tax Reform; Consumption Taxation; State and Local Finance; Tax Competition;
    All these keywords.

    JEL classification:

    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • H22 - Public Economics - - Taxation, Subsidies, and Revenue - - - Incidence
    • H71 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Taxation, Subsidies, and Revenue

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