Compensating Changes to the Property Tax Levy? An Empirical Test of the Residual Rule

49 Pages Posted: 10 May 2014

See all articles by Spencer Brien

Spencer Brien

Naval Postgraduate School - Graduate School of Defense Management

Date Written: May 7, 2014

Abstract

The residual view of the property tax assumes that local governments set their levy as the difference between budgeted expenditures and expected receipts from other revenues. If localities actually follow this approach then they would adjust the levy in the short run to compensate for economic shocks. While this behavior would help stabilize overall finances, it may come at the cost of predictability, a pressing concern for officials interested in the political sustainability of their fiscal structure. Using data from counties and school districts in Georgia, this paper estimates a series of short-run income elasticities to obtain the compensating changes to the levy the residual requires. It then tests whether actual fiscal behavior is more consistent with the residual rule or with an alternative model. The results indicate that only a little more than a third of jurisdictions are found to follow the residual rule.

Keywords: property tax, residual rule, local government

JEL Classification: H71, H72, H73

Suggested Citation

Brien, Spencer, Compensating Changes to the Property Tax Levy? An Empirical Test of the Residual Rule (May 7, 2014). Available at SSRN: https://ssrn.com/abstract=2434353 or http://dx.doi.org/10.2139/ssrn.2434353

Spencer Brien (Contact Author)

Naval Postgraduate School - Graduate School of Defense Management ( email )

555 Dyer Road
Monterey, CA 93943
United States

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