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In most states, the property tax departs markedly from the ideal of a low-rate, broad-based tax that treats various types of real property uniformly. Recently, many states have responded to rapidly rising residential property values with new constraints such as assessment caps. This paper will review property tax performance and analyze several arg...
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... Some researchers claim the existence of uncertainty in the processes of formation of tax revenues. The existence of variability in tax revenues is confirmed by Groves and Kahn (1952) (the first of the works on the volatility of tax revenues), Dye and McGuire (1991), Sobel and Holcombe (1996), Bruce et al. (2006), Giertz (2006), Seegert (2018). Seegert (2018), for example, noting the high level of uncertainty in tax revenues, considers two channels of its distribution: public and private consumption. ...
It is extremely important for the budget process to obtain accurate forecasts of potential tax revenues, especially in periods of disruption and crisis. The paper is devoted to the study of dynamics of tax revenues’ volumes in the budget of Ukraine and the forecast of their values during the crisis.The dynamics of tax revenues in the Consolidated Budget of Ukraine, studied by using randomized R|S-analysis, fractal and probabilistic analyses as well as entropy calculation based on the data on monthly tax revenues for the period 2011–2021, is anti-persistent, fractal-like and unpredictable based on parametric dependencies, simple and complex trends. The topological dimension of the lines of dynamics for tax revenues of all types of taxes is much higher than 1, and the Hirst index indicates either fractal similarity of dynamics or its chaos. The map of dissipation periods of tax revenues in Ukraine, determined on the basis of entropy calculation and periods of negative entropy production according to the dynamics of tax revenues, coincided with the periods of maximum reduction in their volumes. The most crisis periods in the formation of tax revenues are 2019–2020, for certain types of taxes – 2016–2020, but the dissipation of tax revenues is projected for 2021–2022.The comparison of the level of fractal similarity in dynamics of the volume of tax revenues and peculiarities of the dynamics of entropy and entropy production, allowed to substantiate the division of taxes into nine types, of which five were found in Ukraine.
... However, despite the tremendous drop in house prices in some areas, the property tax has, thus far, held up better than other revenue sources. A number of researchers have lauded the property tax for its relative stability (e.g., Giertz 2006;Lutz, Molloy, and Shan 2011). Lutz (2008) finds, using state-level data, that property tax revenues are closely tied to house prices, but it takes several years for property tax systems to fully account for changes in in property values. ...
We use data for a large panel of US Metropolitan Statistical Areas (US MSAs) in order to assess the ex ante likelihood of house price bubbles. We employ a vector error correction–based model in order to project house prices under different scenarios. Projected house price (and employment) distributions are generated for each MSA. The model’s predictions are compared to actual outcomes—focusing primarily on the house price bubble and bust of the Great Recession. In applying these results to local governments, we document a substantial rise in property tax rates during the recent crisis. Results from this exercise suggest that interactions between the property tax and house price fluctuations may have exacerbated the bubble and bust. More generally, our analysis underscores the complexity of forecasting bubbles and cautions against attempting to do so using the notion of a national housing market. Even in recent years, housing markets are heavily influenced by local supply and demand conditions.
... Moreover, property taxes are a more reliable and predictable source of revenues than other forms of taxation (Norregaard, 2013), since the property tax base is mostly immovable and taxpayers can hardly relocate it to areas with lower tax rates. The reliability of property tax revenues also lies in the legally defined value of properties (Brunori, 2003;Giertz, 2006;Alm, Buschman, & Sjoquist, 2011). There are other factors reducing the cyclicality of local revenues arising from property taxes: for instance, Lutz, Molloy, and Shan (2011) find that policy-makers tend to offset declines in the property tax base (e.g., following housing prices' declines) by raising the tax rates, despite the sensitivity of voters to changes of this particular tax, as documented by Cabral and Hoxby (2012). 2 This paper is also related to the studies on the widespread divergence between sub-national expenditures and tax revenues, leading to a well-documented fiscal imbalance calling for transfers from upper government tiers (OECD, 2012). ...
The influence of decentralized taxes and intergovernmental grants on local spending volatility. Regional Studies. This paper studies what affects the volatility of sub-central public spending in 20 Organisation for Economic Co-operation and Development (OECD) countries. The evidence based on data from 1972 to 2007 shows that the volatility of intergovernmental grants from upper levels is positively associated with the volatility of local expenditure. On the other hand, the volatility of local tax revenues - mainly that of property taxes - exerts the opposite effect. These findings suggest that making local governments rely more on grants than own tax revenues adversely affects their spending stability. Allowing them to levy autonomously taxes relying on responsive tax bases provides incentives to smooth their expenditure.
... Moreover, property taxes are a more reliable and predictable source of revenues than other forms of taxation (Norregaard, 2013), since the property tax base is mostly immovable and taxpayers can hardly relocate it to areas with lower tax rates. The reliability of property tax revenues also lies in the legally defined value of properties (Brunori, 2003;Giertz, 2006;Alm, Buschman, & Sjoquist, 2011). There are other factors reducing the cyclicality of local revenues arising from property taxes: for instance, Lutz, Molloy, and Shan (2011) find that policy-makers tend to offset declines in the property tax base (e.g., following housing prices' declines) by raising the tax rates, despite the sensitivity of voters to changes of this particular tax, as documented by Cabral and Hoxby (2012). 2 This paper is also related to the studies on the widespread divergence between sub-national expenditures and tax revenues, leading to a well-documented fiscal imbalance calling for transfers from upper government tiers (OECD, 2012). ...
We study what affects the volatility of sub-central spending in 20 OECD countries. The evidence based on data from 1972 to 2007 shows that the volatility of intergovernmental grants from upper levels is positively associated with the volatility of local expenditure. On the contrary, the volatility of local tax revenues - mainly that of property taxes - exerts the opposite effect. Thus, making local governments rely more on grants than own taxes seems to adversely affect the stability of their spending, while allowing them to autonomously levy taxes on responsive tax bases provides incentives to smooth their expenditure.
... This reduces the tax competition that may arise in the case of mobile tax bases (Eyraud, 2014). The reliability of property tax revenues also lies in the legally defined value of properties (Brunori 2003;Giertz 2006;Alm et al. 2011;Doerner and Ihlanfeldt 2011;Lutz et al. 2011). There are other factors reducing the cyclicality of local revenues arising from property taxes: for instance, Lutz et al. (2011) find that policy makers tend to offset declines in the property tax base (e.g. ...
We study what affects the volatility of sub-central spending in 20 OECD countries. The evidence based on data from 1972 to 2007 shows that the volatility of intergovernmental grants from upper levels is positively associated with the volatility of local expenditure. On the contrary, the volatility of local tax revenues - mainly that of property taxes - exerts the opposite effect. Thus, making local governments rely more on grants than own taxes seems to adversely affect the stability of their spending, while allowing them to autonomously levy taxes on responsive tax bases provides incentives to smooth their expenditure.
... 6. For other work examining the consequences of property value assessment growth limits, see Bowman (2006), Giertz (2006), Anderson and McGuire (2007), Youngman (2007), Mikesell and Mullins (2008), and Skidmore and Tosun (2011). 7. We recognize that differences in effective property tax rates may also emerge from assessment practices. ...
In this paper we examine the degree to which Michigan’s property value assessment growth cap has eroded the tax base and created substantial differences in effective tax rates among residential properties within the City of Detroit. While the analysis focuses on a specific city with significant tax base erosion challenges, it is relevant to other cities in Michigan and across the nation, particularly in states that impose assessment growth limits. Using quantile regression techniques, we examine how an assessment growth cap alters effective tax rate distributions within and across property value groups. Results show that the cap creates a wide range of effective tax rates across properties of similar value (horizontal inequity), and similar tax payments for properties of differing values (vertical inequity).
... 2 As shown in As is visible in Figure 2, property tax revenues generally tend to be less volatile than other forms of tax revenue. This stability has long been seen as one of the primary virtues of the property tax (Brunori 2003;Giertz 2006). The magnitude of the collapse in the housing market, however, raises the possibility that property tax revenues might fall. ...
State and local government tax revenues dropped steeply following the most severe housing market contraction since the Great Depression. We identify five main channels through which the housing market affects state and local tax revenues: property tax revenues, transfer tax revenues, sales tax revenues (including a direct effect through construction materials and an indirect effect through the link between housing wealth and consumption), and personal income tax revenues. We find that property tax revenues do not tend to decrease following house price declines. We conclude that the resilience of property tax receipts is due to significant lags between market values and assessed values of housing and the tendency of policy makers to offset declines in the tax base with higher tax rates. The other four channels have had a relatively modest effect on state tax revenues. We calculate that these channels jointly reduced tax revenues by $22Â billion from 2006 to 2009, which is about 3% of total state own-source revenues in 2006. We conclude that the recent contraction in state and local tax revenues has been driven primarily by the general economic recession, rather than the housing market per-se.
... We have focused on the most recent literature evaluating the distributional consequences of property value assessment growth limits. We note, however, that the work of Anderson and McGuire (2007), Giertz (2006), Bowman (2006), andYoungman (2007), among others provide excellent discussions of important issues surrounding the property tax and property tax limitations, including assessment growth caps. ...
In 1994, a limit on the growth of property values for tax purposes was imposed in Michigan. One consequence of the newly imposed assessment growth cap was an emerging differential in tax prices between potential new property owners and long-time property owners. The purpose this article is to examine the impact of this growing tax price differential on migration patterns. Using county level data on migration activity over the 1994—2006 period, the authors present evidence that differential tax prices resulting from the assessment growth cap have reduced in-migration.
... He fi nds evidence of a decline in mobility, but the decline is not signifi cantly different from similar declines in other parts of the country. For other recent work on the consequences of property value assessment growth limits, see Anderson and McGuire (2007), Bowman (2006), Giertz (2006), Ihlanfeldt (forthcoming) and Youngman (2007). groups. ...
We examine the change in the distribution of property tax payments resulting from Michigan's imposition of a property tax assessment growth cap in 1994. The cap restricts growth in property value for tax purposes to the infl ation rate, for those maintaining continuous ownership. Upon sale, however, the tax base is adjusted to refl ect market value. Using data from a survey conducted in 2008, we fi nd that long-time homeowners enjoy an average reduction in effective tax rates (relative to new homeowners) of 19 percent. The cap also appears to have reduced effec-tive property tax rates for older homeowners, and for those with higher incomes.
... The points are clustered along the 45-degree line, illustrating that despite the historic increase in house prices, the property tax share held essentially constant in all states. This stability has long been seen as one of the primary virtues of the property tax (Brunori 2003;Giertz 2006). The magnitude of the collapse in the housing market, however, raises the possibility that property tax revenues might fall. ...
State and local government tax revenues dropped steeply following the most severe housing market contraction since the Great Depression. We identify five main channels through which the housing market affects state and local tax revenues: property tax revenues, transfer tax revenues, sales tax revenues (including a direct effect through construction materials and an indirect effect through the link between housing wealth and consumption), and personal income tax revenues. We find that property tax revenues do not tend to decrease following house price declines. We conclude that the resilience of property tax receipts is due to significant lags between market values and assessed values of housing and the tendency of policy makers to offset declines in the tax base with higher tax rates. The other four channels have had a relatively modest effect on state tax revenues. We calculate that these channels jointly reduced tax revenues by $15 billion from 2005 to 2009, which is about 2 percent of total state own-source revenues in 2005. We conclude that the recent contraction in state and local tax revenues has been driven primarily by the general economic recession, rather than the housing market per-se. This paper was reposted in October 2010 to update values in table 3.
