No full-text available
To read the full-text of this research,
you can request a copy directly from the authors.
The Housing Crisis and State and Local Government Tax Revenue : Five Channels
Abstract
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.
... Economic development is a long-term process to achieve economic prosperity for the whole community due to the interaction between economic and non-economic factors [20,24]Economic development to improve people's welfare requires an increase in economic growth through production factors to produce goods and services. Economic growth is marked by increased per capita income from year to year, obtained through the gross domestic product (GDP) divided by the total population [16,27]. Graphically, the process of economic growth is demonstrated by a shift to the top right of the production possibilities frontier, which indicates an increase in the production capacity of goods and services, as shown in the following curve: The national income generated by an economy can be formulated through a Cobb-Douglass production function as follows: [37] ...
This study aims to analyze the factors determining economic growth in ASEAN countries, which are the ASEAN economic community members as a potential center for world economic growth. The research method applied in this study was a panel data analysis model with a feasible generalized least square approach. The research period was from 2015 – 2019 in all ASEAN member countries: Indonesia, Myanmar, Malaysia, Singapore, Thailand, Laos, Vietnam, Cambodia, Brunei Darussalam, and the Philippines. Testing the data used the Chow and Hausman tests to determine the analysis method: fixed effect, random effect, or common effect. The results of panel data regression estimation with a feasible generalized least square approach uncovered that the variables of the number of the labor force, currency exchange rates, money supply (M1), exports, imports, Gini index, foreign debt, corruption perception index, financial literacy index, and foreign investment (PMA) significantly affected the economic growth of the ASEAN economic community, including develop agriculture sector. Meanwhile, the variables of domestic investment and financing credit did not affect the economic growth of the ASEAN economic community. The conclusion and recommendation from this study’s results are each ASEAN country’s efforts to encourage economic growth by utilizing its comparative advantages and strategic cooperation to create market opportunities and increase the economic efficiency of the ASEAN economic community.
... In other cities, for example, Detroit, with an ample housing supply, conversion of office building is much less likely. 6 Similar lags are reported by Lutz, Molloy, andShan (2011), Lutz (2008), Alm, Buschman, andSjoquist (2011), Chernick, Langley, andReschovsky (2012), and Goodman (2018). ...
This paper examines how local governments adjust their spending in response to a temporary revenue windfall generated by a housing boom. We focus on Spanish local governments because of the intensity of the last housing boom-bust experienced there and the large share of construction-related revenues they obtain. We find that windfall revenues were mostly used to increase expenditures (above all, current). We seek to determine whether this behaviour was due to political myopia (incumbents in contested elections increasing expenditures to convince uninformed voters about their competence) or to extrapolation bias (leading to the overstatement of the persistence of revenue shocks). We find evidence for both mechanisms: the propensity to spend is higher where local incumbents were elected by a narrow vote margin and lower in places with past volatility experience. Finally, we also examine what happens during the bust, and find that governments enjoying large windfalls during the boom had to cut their spending abruptly (above all, capital) and raise taxes. The adjustment during the bust was actually greater in those places that overspent more during the crisis.
We examine the fiscal consequences of sustained population loss in American cities. We find the starkest difference between growing and declining cities in their levels of social and economic distress: Declining cities have higher rates of poverty and crime. Our evidence also suggests that shrinking cities have less fiscal capacity than growing cities, although this relationship is complicated by an apparent nonlinearity: Shrinking and rapidly growing cities both have less fiscal capacity than high-demand cities that grow slowly. Lastly, both high distress and low fiscal capacity appear to predict further population loss. Together, our evidence suggests that population loss may both increase social problems and decrease the resources available to solve them, and that declining cities may enter vicious cycles that perpetuate further decline.
This study examines how protest format and use of an agent affect the magnitude of the adjustments obtained in property tax appeals. The sample includes all single-family residential properties in Harris County, Texas for which a property tax protest was filed in 2010 or 2011 (n = 290,022). A protest can be settled in one of three formats: electronically (only when an agent is not used), an informal hearing, or a formal hearing. Because an owner’s decision to use an agent is voluntary, I use a two-stage estimation process to help control for potential selection bias. The firststage probit model is used to generate the predicted probability that an owner will use an agent, while the second-stage Tobit regression models the appeals adjustment as a function of protest format, agent use, control variables, and the selection-bias variable. Empirical results show that when an owner does not use an agent, appeals adjustments for electronic settlements are smaller than for informal settlements, and appeals adjustments for informal settlements are smaller than for formal settlements. When an agent is used, results show the opposite: appeals adjustments for informal settlements are greater than for formal settlements. Results also show that appeals adjustments are smaller when an agent is used compared with owners representing themselves, regardless of whether the hearing is formal or informal. Results are generally consistent with agency problems whereby property tax agents accept suboptimal appeals adjustments. Results from the first-stage probit model provide evidence on factors that affect the likelihood that an owner will use an agent.
The paper discusses the fiscal impact of the Great Recession of 2007-08 on state and local governments in the United States. It documents the sharp decline in tax revenue and discusses how states responded to close the budget gaps in order to obey the balanced budget provisions. It highligts the procyclical nature of this policy response, provides a brief comparison with subnational policy stances in other advanced economies, and discusses some options for making subnational fiscal policy less procyclical within the framework of current rules.
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 arguments relating to alleged deficiencies of the property tax. The analysis suggests that the property tax has performed well by most measures and that it ranks high in terms of both stability and revenue elasticity. The restrictions and constraints imposed on the property tax are likely the result of the pursuit of political objectives by decision makers and not the result of structural problems with the tax itself.
The speed and severity of the decline in the Irish fiscal position in recent years raises a number of important issues regarding the assessment of fiscal policy within the EU. From a position of relative strength, with large surpluses and a low debt to GDP ratio, the Irish public finances have rapidly deteriorated, culminating in an Excessive Deficit Procedure being launched in early 2009. In hindsight, it is evident that tax revenues were on an unsustainable path in recent years due, in large part, to structural imbalances within the economy, mainly associated with the housing market. The excess growth in the latter culminated in large and transitory tax revenue windfalls, which ultimately proved unsustainable. These windfalls contributed to large general government and cyclically adjusted budget surpluses. This paper seeks to quantify the windfall gains associated with property taxes through modelling housing related tax receipts over the period 2002 to 2009. From this, estimates are derived as to the underlying or property adjusted fiscal position, which is found in various years, to have diverged greatly from actual outturns.
Borrowing against the increase in home equity by existing homeowners was responsible for a significant fraction of the rise in US household leverage from 2002 to 2006 and the increase in defaults from 2006 to 2008. Instrumental variables estimation shows that homeowners extracted 25 cents for every dollar increase in home equity. Home equity-based borrowing was stronger for younger households and households with low credit scores. The evidence suggests that borrowed funds were used for real outlays. Home equity-based borrowing added $1.25 trillion in household debt from 2002 to 2008, and accounts for at least 39 percent of new defaults from 2006 to 2008. JEL: D14, R31
Using data from the Panel Study of Income Dynamics, this paper considers the mechanism by which changing house values impact U.S. household spending. The results suggest that house values affect consumption by serving as collateral for households to borrow against to smooth their spending. The results show that the consumption of households who need to borrow against their home equity increases by roughly 11 cents per $1.00 increase in their housing wealth. Changing house values, however, have little effect on the expenditures of households who do not need to borrow to finance their consumption. Based on these results, the paper further finds that declining housing wealth has a relatively small implied negative impact on aggregate consumption expenditures.
Many states experienced fiscal crises at the beginning of this decade. Some responded by cutting state aid to local governments. This paper explores the extent to which local governments responded to these aid cuts by raising property taxes. The authors hypothesize that changes in aid help explain the observed differences in per capita property tax revenue changes across states. They find that on average school districts increased property taxes by 23 cents for each dollar cut in state aid. These results highlight the important role that the property tax plays in maintaining the stability of the state and local sector.
Over much of the past 25 years, the cycles of house price and consumption growth have been closely
synchronised. Three main hypotheses for this co-movement have been proposed in the literature.
First, that an increase in house prices raises households’ wealth, particularly for those in a position to
trade down the housing ladder, which increases their desired level of expenditure. Second, that
house price growth increases the collateral available to homeowners, reducing credit constraints and
thereby facilitating higher consumption. And third, that house prices and consumption have tended
to be influenced by common factors. This paper finds that the relationship between house prices and
consumption is stronger for younger than older households, which appears to contradict the wealth
channel. These findings therefore suggest that common causality has been the most important factor
behind the link between house price and consumption.
We examine the link between increases in housing wealth, financial wealth, and consumer spending. We rely upon a panel of 14 countries observed annually for various periods during the past 25 years and a panel of U.S. states observed quarterly during the 1980s and 1990s. We impute the aggregate value of owner-occupied housing, the value of financial assets, and measures of aggregate consumption for each of the geographic units over time. We estimate regression models in levels, first differences and in error-correction form, relating consumption to income and wealth measures. We find a statistically significant and rather large effect of housing wealth upon household consumption.
Transfer Taxes, Real Estate
- John Behrens
- Jane Gravelle
Behrens, John and Jane Gravelle. "Transfer Taxes, Real Estate" in The Encyclopedia of Taxation
and Tax Policy, eds. Joseph Cordes, Robert Ebel and Jane Gravelle, Urban Institute Press, 2004.
Why Your're Paying Too Much in Property Taxes
- D L Bennett
- John Perry
Bennett, D.L. and John Perry, "Why Your're Paying Too Much in Property Taxes", Atlanta
Journal-Constitution, Metro Section, December 7, 2009.
Some Findings Regarding Monetary Policy and the Ending of House Price Bubbles
- Mark Carlson
Carlson, Mark. "Some Findings Regarding Monetary Policy and the Ending of House Price
Bubbles", mimeo, Federal Reserve Board, 2010.
Wealth Effects and the Changing Economy," mimeo, Brookings Institution
- Karen Dynan
Dynan, Karen. "Wealth Effects and the Changing Economy," mimeo, Brookings Institution,
2010.
35
the Distribution of Home Sales Growth Across States Figure 3: Local Property Taxes Source. Census Bureau, State and Local Government Finance Data
- Paul Wiseman
Wiseman, Paul, "Homeowners Balk as Property Tax Bills Stay High", USA Today, Money
Section, March 20, 2010.
the Distribution of Home Sales Growth Across States
Figure 3: Local Property Taxes
Source. Census Bureau, State and Local Government Finance Data.
year Percentiles of the Distribution of Home Sales Growth Across States Figure 3: Local Property Taxes Source. Census Bureau, State and Local Government Finance Data
- Paul Wiseman
Wiseman, Paul, "Homeowners Balk as Property Tax Bills Stay High", USA Today, Money
Section, March 20, 2010.
2000
2001
2002
2003
2004
2005
2006
2007
2008
25
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
year
Percentiles of the Distribution of Home Sales Growth Across States
Figure 3: Local Property Taxes
Source. Census Bureau, State and Local Government Finance Data.
8%
1994
1996
1998
2000
2002
2004
2006
2008