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Property Tax Delinquency and its Spillover Effects on Nearby Properties

Author

Listed:
  • James Alm

    () (Department of Economics, Tulane University)

  • Jin Man Lee

    () (The Institute for Housing Studies and Department of Economics DePaul University)

  • Zackary Hawley

    () (Department of Economics Texas Christian University)

  • Joshua J. Miller

    () (Department of Housing and Urban Development)

Abstract

This paper investigates the impact of property tax delinquency on the sales price of nearby residential properties, an effect that we call the "delinquency discount". We use a sample of 34,500 home sales and the population of delinquent properties for Chicago, Illinois during the period 2010 to 2013. We focus on the delinquency discount for properties within the same census block. We also examine the effect of delinquency duration on neighboring properties, as this measures the level of their financial distress. We estimate the magnitude of the delinquency discount using several alternative estimation methods, in each case controlling for local foreclosure activity. Our preferred method is a matching estimator, as it works to eliminate the potential for omitted variable bias that is common in this type of estimation. We find large, negative, and statistically meaningful effects of delinquent properties for which the local government has placed a tax lien and has put the lien up for sale to private investors. For properties with a tax lien that are not successfully sold, we estimate a negative spillover of 5.1 percent ($12,872) on surrounding properties. Properties with a tax lien that are sold to private investors have a smaller, but still negative impact on surrounding property values of 2.5 percent ($6,310).

Suggested Citation

  • James Alm & Jin Man Lee & Zackary Hawley & Joshua J. Miller, 2016. "Property Tax Delinquency and its Spillover Effects on Nearby Properties," Working Papers 1623, Tulane University, Department of Economics.
  • Handle: RePEc:tul:wpaper:1623
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    File URL: http://repec.tulane.edu/RePEc/pdf/tul1623.pdf
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    References listed on IDEAS

    as
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    Cited by:

    1. James Alm & J. Sebastian Leguizamon, 2018. "The Housing Crisis, Foreclosures, and Local Tax Revenues," Working Papers 1803, Tulane University, Department of Economics.

    More about this item

    Keywords

    State and Local Taxation; Housing Supply and Markets; Property Tax Delinquency.;

    JEL classification:

    • H71 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Taxation, Subsidies, and Revenue
    • R31 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Housing Supply and Markets

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