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Rethinking Local Government Reliance on the Property Tax

  • James Alm

    ()

    (Department of Economics, Tulane University)

  • Robert D. Buschman

    ()

    (Fiscal Research Center, Andrew Young School of Policy Studies, Georgia State University)

  • David L. Sjoquist

    ()

    (Economics Department, Georgia State University)

Historically, local governments in the United States have relied on the property tax as one of their main sources of own-source revenues. However, the recent collapse of housing prices and the resulting negative impact on local government budgets suggest that it may be opportune to rethink this strategy. In this paper we document the overall decline in property values in the United States in recent years, and we find that the impact is in the aggregate negative but that the impact varies significantly by state and by locality. We also examine the impact on local government revenues, and we again find substantial regional and local variation. Indeed, our data indicate that substantial numbers of local governments seem to have avoided the significant and negative budgetary impacts seen most clearly for state and federal governments, at least to date. We then focus specifically on the State of Georgia, in order to determine the ways in which local governments have responded to the economic recession. Our empirical analyses indicates that there are several factors causing changes in property tax revenues, but the dominant factor is changes in housing prices, with some significant lags. We conclude that local government reliance on the property tax has in fact been an advantage for many local governments in the current economic environment, and that such reliance is likely to continue in at least some form for the immediate future.

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File URL: http://econ.tulane.edu/RePEc/pdf/tul1215.pdf
File Function: First Version, 2012
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Paper provided by Tulane University, Department of Economics in its series Working Papers with number 1215.

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Length: 42 pages
Date of creation: Jul 2012
Date of revision:
Handle: RePEc:tul:wpaper:1215
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  1. 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.).
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  27. repec:cup:cbooks:9780521021807 is not listed on IDEAS
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