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The Economic Effects of Replacing the Property Tax with a Sales or Income Tax:A Computable General Equilibrium Approach

Author

Listed:
  • Dagney Faulk

    (Center for Business and Economic Research, Miller College of Business, Ball State University)

  • Nalitra Thaiprasert

    (Center for Business and Economic Research, Miller College of Business, Ball State University)

  • Michael Hicks

    (Center for Business and Economic Research, Miller College of Business, Ball State University)

Abstract

With the most recent wave of property tax restructuring in the U.S., policy makers have considered the possibility of replacing the property tax. In this analysis we use data for Indiana and a short-run computable general equilibrium model to examine the effects of replacing the property tax with a sales or income tax. We find that replacing the property tax with a sales or income tax has a relatively small effect on aggregate economic variables. Aggregate output in the state decreases by 2 to 3 percent. Larger effects are apparent when analyzing household groups and industry sectors. Replacing the property tax with a sales or income tax decreases household income by over three percent with the income tax being most regressive. Replacing the property tax has a negative effect on sales revenue for most industry sectors with retail sales and several other sectors experiencing large (over five percent) decreases.

Suggested Citation

  • Dagney Faulk & Nalitra Thaiprasert & Michael Hicks, 2010. "The Economic Effects of Replacing the Property Tax with a Sales or Income Tax:A Computable General Equilibrium Approach," Working Papers 201008, Ball State University, Department of Economics, revised Jun 2010.
    • Handle: RePEc:bsu:wpaper:201008
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    File URL: http://econfac.bsu.edu/research/workingpapers/bsuecwp201008faulk.pdf
    File Function: First version, 2010
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    Cited by:

    1. Plassmann, Florenz & Feltenstein, Andrew, 2016. "How large do multi-region models need to be?," Journal of Policy Modeling, Elsevier, vol. 38(1), pages 138-155.
    2. Jeffrey Condon & Andrew Feltenstein & Florenz Plassman & Mark Rider & David L. Sjoquist, 2014. "A Regional Model of Growth Oriented Fiscal Policy: An Application to Georgia and Its Competitor States," The Review of Regional Studies, Southern Regional Science Association, vol. 44(2), pages 177-209, Summer.

    More about this item

    Keywords

    property tax; sales tax; income tax; computable general equilibrium models;
    All these keywords.

    JEL classification:

    • H71 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Taxation, Subsidies, and Revenue
    • C68 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computable General Equilibrium Models

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