Why are Residential Property Tax Rates Regressive?

51 Pages Posted: 23 Nov 2020 Last revised: 30 Nov 2020

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 overappraised relative to expensive houses. At least 30% 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 phenomenon. Heterogeneous appeal behavior and outcomes do not contribute. Overtaxation of minorities and low-income households is a by-product of assessment regressivity because these households sort into cheap houses. Within the same local house price decile, black households are proportionately taxed, while Hispanic and low-income households are undertaxed. Taken at face value, correcting assessment regressivity would increase poor homeowners' net worth by more than 15%.

Keywords: Property Tax, Valuation Methods, Assessment Regressivity

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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