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Detroit Property Tax Delinquency---Social Contract in Crisis

Listed author(s):
  • James Alm

    ()

    (Department of Economics, Tulane University)

  • Timothy R. Hodge

    ()

    (Department of Economics, Allegheny College)

  • Gary Sands

    ()

    (Urban Planning Program, Wayne State University \end{minipage})

  • Mark Skidmore

    ()

    (Department of Agricultural, Food and Resource Economics, and Department of Economics, Michigan State University)

As the country reemerges from the real estate crisis, the City of Detroit, Michigan continues to struggle, and is currently in the midst of bankruptcy proceedings. Falling property values have led to significant reductions in property tax revenues. In addition, the rate of property tax delinquency in Detroit is 48 percent, resulting in uncollected tax revenues of about 20 percent. This high rate of tax delinquency results from a confluence of factors including limited tax enforcement, feelings of tax inequity, and failure to provide public services, all of which have contributed to a breakdown in the social contract between the City and its residents. In this paper we develop a theoretical model of the individual decision to become delinquent on one's property tax payments. We then use detailed parcel-level data to evaluate the factors that affect both the probability that a property owner is tax delinquent and, conditional upon delinquency, the magnitude of the delinquency. Our estimates show that properties that have lower value, longer police response times, are non-homestead (non-owner occupied residential properties), have a higher statutory tax rate, have a higher assessed value relative to sales price, are owned by a financial institution or by a Detroit resident, are delinquent on water bills, and for which the probability of enforcement is low are more likely to be tax delinquent These findings can be used to inform policies targeted at improving tax compliance within the City.

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File URL: http://econ.tulane.edu/RePEc/pdf/tul1508.pdf
File Function: First Version, January 2015
Download Restriction: no

Paper provided by Tulane University, Department of Economics in its series Working Papers with number 1508.

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Date of creation: Aug 2015
Handle: RePEc:tul:wpaper:1508
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  1. Alm, James & McClelland, Gary H & Schulze, William D, 1999. "Changing the Social Norm of Tax Compliance by Voting," Kyklos, Wiley Blackwell, vol. 52(2), pages 141-171.
  2. Agnar Sandmo, 2012. "An evasive topic: theorizing about the hidden economy," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 19(1), pages 5-24, February.
  3. Heckman, James, 2013. "Sample selection bias as a specification error," Applied Econometrics, Publishing House "SINERGIA PRESS", vol. 31(3), pages 129-137.
  4. Kirchler,Erich, 2007. "The Economic Psychology of Tax Behaviour," Cambridge Books, Cambridge University Press, number 9780521876742, December.
  5. James Alm & Benno Torgler, 2012. "Do Ethics Matter? Tax Compliance and Morality," Working Papers 1207, Tulane University, Department of Economics.
  6. Bradley, Sebastien, 2012. "Property Tax Salience and Payment Delinquency," School of Economics Working Paper Series 2012-9, LeBow College of Business, Drexel University.
  7. Allingham, Michael G. & Sandmo, Agnar, 1972. "Income tax evasion: a theoretical analysis," Journal of Public Economics, Elsevier, vol. 1(3-4), pages 323-338, November.
  8. James Alm, 2012. "Measuring, explaining, and controlling tax evasion: lessons from theory, experiments, and field studies," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 19(1), pages 54-77, February.
  9. Joel Slemrod, 2007. "Cheating Ourselves: The Economics of Tax Evasion," Journal of Economic Perspectives, American Economic Association, vol. 21(1), pages 25-48, Winter.
  10. Timothy R. Hodge & Mark Skidmore & Gary Sands & Daniel McMillen, 2013. "Tax Base Erosion and Inequity from Michigan's Assessment Growth Limit: The Case of Detroit," CESifo Working Paper Series 4098, CESifo Group Munich.
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