Exploring the relationship between personal income inequality, property values, and property tax revenue over time: A panel data analysis for Spain (2006-2016)

The aim of this paper is to analyze the evolving relationship over time among personal income inequality, property values, and property tax revenue. We specifically examine the case of Spain from 2006 to 2016, a period marked by the tail end of economic expansion, the bursting of a real estate bubble, the repercussions of the 2008 financial crisis, and the subsequent Great Recession, alongside the initial stages of economic recovery starting from 2015. Spain’s notable rate of owner occupied primary residences (averaging 84% throughout this time frame), along with substantial heterogeneity in both average personal income and its distribution within municipalities, justifies the importance of this research. Given the substantial reliance of municipal finances on property tax, understanding these dynamics is, in our view, paramount. To capture the structural dynamics of this relationship, we employ a panel data analysis covering 1,015 municipalities with more than 6,000 inhabitants over the specified period. The research uncovers prevalent and significant inequality across these municipalities, primarily caused by decreased average income per capita, a reduced average-to-median income ratio, and a declining labor force. A negative relationship is also found between personal income inequality within municipalities and local tax revenue.