Property Tax Web Series

Abstract

The extent to which changes in local property taxes are capitalized into housing prices is an ongoing empirical debate. Estimates of the capitalization rate for property taxes vary in magnitude and typically depend heavily on the setting, if capitalization is found to occur at all. This paper contributes to the empirical literature on property tax capitalization by demonstrating varying responses to statutory property tax rate increases and decreases along the distribution of house prices in counties containing large U.S. cities. The empirical setting uses novel data on county-level statutory property tax rates for around one hundred and fifteen counties. Within-county standardized decreases are more influential than increases by about 1.5 times. Decreases in the statutory property tax rate tend to increase house prices around 1.3%, and increases tend to decrease house prices around 0.9%. Using recentered-influence functions (RIFs) that analyze unconditional quantile regressions, the responsiveness of households is shown to vary across the distribution of house prices. Specifically, house prices respond to increases in property tax rates by larger percentages on the lower end of the house price distribution, and house prices are unaffected by rate hikes on the high end of the distribution. House prices also respond to decreases in property tax rates, and house prices respond by larger percentages on the lower end of the distribution. The impacts of statutory property tax rate changes are economically significant in either direction, though only increases are statistically different along the distribution.

This paper was presented by Kyle Kopplin (Black Hills State University) on March 22, 2024 as part of the 2023-2024 Syracuse-Chicago Webinar Series on Property Tax Administration and Design. John Yinger (Syracuse University) was the discussant for this presentation.

Yinger comments on Kopplin's "County Property Tax Capitalization in U.S. Cities."