Homeowners, Renters and the Political Economy of Property Taxation

33 Pages Posted: 6 Dec 2014

See all articles by Eric J. Brunner

Eric J. Brunner

University of Connecticut

Stephen L. Ross

University of Connecticut - Department of Economics

Becky Simonsen

Columbia University

Date Written: December 4, 2014

Abstract

Studies that examine the demand for local public services that are financed by a property tax consistently find that renters are more supportive of public spending than homeowners, a finding commonly referred to as the “renter effect.” In this paper we use detailed micro-level survey data to provide new evidence on the renter effect. The renter effect suggests that, all else equal, renters should prefer property taxation over other forms of taxation. We test that hypothesis using voter responses to two key questions: their willingness to pay higher property taxes to fund public services and their willingness to pay higher sales taxes to fund those services. Using a difference-in-differences estimation strategy, we find first that renters are approximately 10 to 18 percentage points more likely than homeowners to favor a property tax increase over a sales tax increase, a finding consistent with the presence of a renter effect. However, these results are not driven by the voting behavior of renters. Analysis based on separate regressions for renters and homeowners reveals that renters are indifferent between a property tax increase and either a sales tax or state income tax increase, while homeowners strongly oppose a property tax increase relative to either a sales tax or state income tax increase. Further analysis reveals that the strong opposition among homeowners to the property tax is not associated with the relative tax burden faced by homeowners. Examining the variation in tax burden created by Proposition 13 in California, we find that homeowner aversion to the property tax does not increase with the homeowner’s relative tax burden. These findings of homeowner aversion to property taxes are consistent with recent work suggesting that salience matters when voters evaluate taxes, but also suggest that increased salience does not necessarily lead to more careful consideration of individual tax burdens.

Keywords: Homeowners, renters, political economy, property tax, Proposition 13, tax burden, renter effect

Suggested Citation

Brunner, Eric J. and Ross, Stephen L. and Simonsen, Becky, Homeowners, Renters and the Political Economy of Property Taxation (December 4, 2014). Available at SSRN: https://ssrn.com/abstract=2534044 or http://dx.doi.org/10.2139/ssrn.2534044

Eric J. Brunner

University of Connecticut ( email )

Department of Public Policy
1800 Asylum Ave, 4th Floor
West Hartford, CT 06117
United States
860.570.9217 (Phone)

HOME PAGE: http://https://sites.google.com/site/ericbrunner1/

Stephen L. Ross (Contact Author)

University of Connecticut - Department of Economics ( email )

365 Fairfield Way, U-1063
Storrs, CT 06269-1063
United States
860-486-3533 (Phone)
860-486-4463 (Fax)

Becky Simonsen

Columbia University ( email )

3022 Broadway
New York, NY 10027
United States

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