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Anticipated Property Tax Increases and the Timing of Home Sales: Evidence from Administrative Data

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  • William H. Hoyt
  • Aaron Yelowitz

Abstract

Restrictions imposed on property assessment practices by state legislation such as Proposition 13 in California and Proposition 2½ in Massachusetts can lead to significant divergences between the assessed and market values of property, particularly for households with long tenures. As properties are assessed at their market value when sold, this can lead to a significant divergence in the property tax payment for a current homeowner and a prospective purchaser of the property. This may lead to “lock-in”, decreased mobility, of homeowners reluctant to lose their tax advantage. Here using data on single family dwellings in Lexington, KY (Fayette County) we examine another practice leading to a systematic difference between assessed and market value of properties, the practice of assessing properties in individual neighborhoods on a four-year basis. In times of high housing appreciation, the difference in tax payments for houses last assessed two or three years earlier and their market values, the tax base for a new purchaser, can be significant and lead to a lock-in effect. Using administrative data from the Fayette County PVA we find evidence that housing sales are higher in the year before a neighborhood assessment suggesting that households adjust their mobility to capture the tax advantage associated with limited assessment.

Suggested Citation

  • William H. Hoyt & Aaron Yelowitz, 2016. "Anticipated Property Tax Increases and the Timing of Home Sales: Evidence from Administrative Data," CESifo Working Paper Series 6264, CESifo Group Munich.
  • Handle: RePEc:ces:ceswps:_6264
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    File URL: http://www.cesifo-group.de/DocDL/cesifo1_wp6264.pdf
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    References listed on IDEAS

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    1. Dye, Richard F. & McMillen, Daniel P. & Merriman, David F., 2006. "Illinois' Response to Rising Residential Property Values: An Assessment Growth Cap in Cook County," National Tax Journal, National Tax Association;National Tax Journal, vol. 59(3), pages 707-716, September.
    2. Ferreira, Fernando, 2010. "You can take it with you: Proposition 13 tax benefits, residential mobility, and willingness to pay for housing amenities," Journal of Public Economics, Elsevier, vol. 94(9-10), pages 661-673, October.
    3. Cunningham, Christopher R. & Engelhardt, Gary V., 2008. "Housing capital-gains taxation and homeowner mobility: Evidence from the Taxpayer Relief Act of 1997," Journal of Urban Economics, Elsevier, vol. 63(3), pages 803-815, May.
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    5. Skidmore, Mark & Ballard, Charles L. & Hodge, Timothy R., 2010. "Property Value Assessment Growth Limits and Redistribution of Property Tax Payments: Evidence From Michigan," National Tax Journal, National Tax Association;National Tax Journal, vol. 63(3), pages 509-537, September.
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    More about this item

    Keywords

    property taxation; assessment; lock-in;

    JEL classification:

    • H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General
    • H71 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Taxation, Subsidies, and Revenue
    • R30 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - General

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