Property Tax and Property Values: Evidence from the 2012 Italian Tax Reform
51 Pages Posted: 6 Sep 2017 Last revised: 13 Sep 2019
Date Written: March 11, 2019
This paper assesses the extent to which property taxes are capitalized into property values, exploiting the 2012 Italian tax reform. Municipal-level variation in the level of the property tax rates is instrumented using the exogenous staggered timing of local elections. We show that the incumbent local governments with upcoming elections in 2013 shifted the composition of fiscal revenues towards lower property tax. Our 2SLS estimate shows that a one standard deviation increase in municipal-level property tax intensity leads to a 2.7% reduction of municipal property values in the year of the reform. We elicit information on the characteristics of the compliers and show that these municipalities feature inefficient public spending and low social capital.
Keywords: Real estate values, Property tax capitalization, Political economy, Compliers
JEL Classification: D72, G12, H20, R32
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