The Assessment Gap: Racial Inequalities in Property Taxation

82 Pages Posted: 16 Oct 2019 Last revised: 31 Mar 2020

See all articles by Carlos Avenancio-Leon

Carlos Avenancio-Leon

Indiana University - Kelley School of Business

Troup Howard

University of California, Berkeley - Finance Group

Date Written: October 5, 2019

Abstract

We use panel data covering 118 million homes in the United States, merged with geolocation detail for 75,000 taxing entities, to document a nationwide "assessment gap" which leads local governments to place a disproportionate fiscal burden on racial and ethnic minorities. We show that holding jurisdictions and property tax rates fixed, black and Hispanic residents nonetheless face a 10-13% higher tax burden for the same bundle of public services. This assessment gap arises through two channels. First, property assessments are less sensitive to neighborhood attributes than market prices are. This generates racially correlated spatial variation in tax burden within jurisdiction. Second, appeals behavior and appeals outcomes differ by race. This results in higher assessment growth rates for minority residents. We propose an alternate approach for constructing assessments based on small-geography home price indexes, and show that this reduces inequality by at least 55-70%.

Suggested Citation

Avenancio-Leon, Carlos and Howard, Troup, The Assessment Gap: Racial Inequalities in Property Taxation (October 5, 2019). Available at SSRN: https://ssrn.com/abstract=3465010 or http://dx.doi.org/10.2139/ssrn.3465010

Carlos Avenancio-Leon

Indiana University - Kelley School of Business ( email )

1309 East Tenth Street
Indianapolis, IN 47405-1701
United States

Troup Howard (Contact Author)

University of California, Berkeley - Finance Group ( email )

Haas School of Business
545 Student Services Building
Berkeley, CA 94720
United States

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