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Designing a property tax without property values: Analysis in the case of Ireland

Author

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  • Mayor, Karen
  • Lyons, Seán
  • Tol, Richard S. J.

Abstract

We examine the implications of using hedonic regressions of house values as the basis for property tax assessment in the Republic of Ireland. Ad valorem property taxes are more equitable than flat rate taxes, but their equity benefits can be reduced if the relative values of dwellings are inaccurately assessed. Achieving greater accuracy in assessment tends to increase administrative costs, so policymakers face a trade-off between cost and accuracy. Using the Irish National Survey of Housing Quality of 2002, this study analyses the contribution that information about selected property characteristics can make to determine the relative values of residential properties in Ireland. These characteristics are the location of the dwelling, house size in square meters, the number of rooms and bedrooms in the home, the age of the house and the type of dwelling. The values of residential properties are estimated using these variables in turn and the prediction errors are presented in terms of the absolute value error and the assessment ratio (the estimated value divided by the market value). We find that it is possible to assign approximately 80% of houses nationally within the correct tax valuation band using just one of five house characteristics. Households whose house price is under assessed tend to be those with the greatest means (highly skilled professionals and high income earners), so a tax assessment system based on this type of valuation would tend to make regressive errors (while a property tax itself is regressive too). Consequently, checks would need to be put in place in order to more accurately estimate very highly priced properties as well as introducing exemptions for lower value properties and low income groups. The system could also be used to identify likely mis-reporting if using a self-assessment system.

Suggested Citation

  • Mayor, Karen & Lyons, Seán & Tol, Richard S. J., 2010. "Designing a property tax without property values: Analysis in the case of Ireland," Papers WP352, Economic and Social Research Institute (ESRI).
  • Handle: RePEc:esr:wpaper:wp352
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    File URL: http://www.esri.ie/pubs/WP352.pdf
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    References listed on IDEAS

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    1. Asher Wolinsky, 2000. "A Market Based Approach to Property Tax," Discussion Papers 1320, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
    2. Jeffrey I. Chapman & Robert J. Johnston & Timothy J. Tyrrell, 2009. "Implications of a Land Value Tax with Error in Assessed Values," Land Economics, University of Wisconsin Press, vol. 85(4), pages 576-586.
    3. McMillen, Daniel P. & Weber, Rachel N., 2008. "Thin Markets and Property Tax Inequities: A Multinomial Logit Approach," National Tax Journal, National Tax Association;National Tax Journal, vol. 61(4), pages 653-671, December.
    4. Smith, Lawrence B & Rosen, Kenneth T & Fallis, George, 1988. "Recent Developments in Economic Models of Housing Markets," Journal of Economic Literature, American Economic Association, vol. 26(1), pages 29-64, March.
    5. Watson, Dorothy & Williams, James, 2003. "Irish National Survey of Housing Quality 2001-2002," Research Series, Economic and Social Research Institute (ESRI), number BMI173.
    6. Richard Bird, 1984. "Put up or shut up: Self-assessment and asymmetric information," Journal of Policy Analysis and Management, John Wiley & Sons, Ltd., vol. 3(4), pages 618-620.
    7. Ronald W. Spahr & Mark A. Sunderman, 1998. "Property Tax Inequities on Ranch and Farm Properties," Land Economics, University of Wisconsin Press, vol. 74(3), pages 374-389.
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    Citations

    Blog mentions

    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. Poll tax to be replaced by property tax
      by Richard Tol in The Irish Economy on 2011-12-21 15:07:29
    2. Property taxes
      by Richard Tol in The Irish Economy on 2010-11-15 15:09:04
    3. Policy seminar on property taxes
      by Richard Tol in The Irish Economy on 2010-11-01 20:13:25

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    Cited by:

    1. Keane, Claire & Walsh, John R. & Callan, Tim & Savage, Michael, 2012. "Property Tax in Ireland: Key Choices," Papers EC11, Economic and Social Research Institute (ESRI).

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    Keywords

    hedonic regression/Ireland/property tax;

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