Political Costs and Fiscal Benefits: The Political Economy of Residential Property Value Assessment

Abstract

In many American states and municipalities, property taxes are the primary means of raising government revenues. Unlike sales or income taxes, however, property taxes have a significant element of subjectivity - the assessed value of the property being taxed. Given this subjectivity, there exists the possibility of political and fiscal incentives entering into property value assessment. We examine the determinants of assessed property value growth in a panel of 351 Massachusetts municipalities from 1995 to 2009. We hypothesize that the year to year growth of assessed value is in part determined by the municipality’s fiscal condition, the availability of alternative revenue sources, and whether the municipality’s property assessor is directly elected or appointed by an elected official. We find evidence that elected assessors respond to both the fiscal benefits and political costs of increasing their assessment of property values. Appraisals grow faster in towns with appointed assessors and respond to temporary raises in the cap on tax revenues with increases in appraisal growth.

Keywords: Property Taxes, Local Public Finance, Property Appraisal

JEL Classification: H71, D70