Why are Residential Property Tax Rates Regressive?

65 Pages Posted: 23 Nov 2020 Last revised: 9 Nov 2021

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 almost 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-assessed relative to expensive houses. I use an instrumental variable approach to show that a large portion of this pattern can be attributed to measurement error in sale prices. Sixty percent of the remaining regressivity can be explained by tax assessors' flawed valuation methods that ignore variation in priced house and neighborhood characteristics and 40% by infrequent reappraisal. A simple valuation method can alleviate assessment regressivity and increase poor homeowners' net worth by more than 10%.

Keywords: Property Tax, Assessment Regressivity, Wealth 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)

Federal Reserve Bank of Philadelphia ( email )

Philadelphia, PA
United States

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