Why are Residential Property Tax Rates Regressive?

57 Pages Posted: 23 Nov 2020 Last revised: 26 May 2021

See all articles by Natee Amornsiripanitch

Natee Amornsiripanitch

Yale University, School of Management, Students

Date Written: November 12, 2020

Abstract

Among single-family homes that enjoy the same set of property tax-funded amenities and pay the same statutory property tax rate, owners of cheap houses pay 50% higher effective tax rates than owners of expensive houses. This pattern appears throughout the United States and is caused by systematic assessment regressivity -- cheap houses are over-appraised relative to expensive houses. Thirty percent of the observed regressivity can be explained by tax assessors' flawed valuation methods, which ignore variation in priced house and neighborhood characteristics. Infrequent reappraisal explains less than 10% of the regressivity. Heterogeneous appeals behavior and outcomes do not contribute. Over-taxation of disadvantaged households such as minority, low-income, and less educated households is a by-product of model-induced assessment regressivity because these households have low levels of wealth and sort into cheap houses. Taken at face value, correcting assessment regressivity would increase poor homeowners' net worth by almost 15%. These results have important implications for wealth taxation policies.

Keywords: Property Tax, Valuation Methods, Inequality

JEL Classification: H2, R00, G00

Suggested Citation

Amornsiripanitch, Natee, Why are Residential Property Tax Rates Regressive? (November 12, 2020). Available at SSRN: https://ssrn.com/abstract=3729072 or http://dx.doi.org/10.2139/ssrn.3729072

Natee Amornsiripanitch (Contact Author)

Yale University, School of Management, Students ( email )

New Haven, CT
United States

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