Property Taxes and House Values

Property Taxes and House Values: The Theory and Estimation of Intrajurisdictional Property Tax Capitalization explains the link between property taxes and house values and elaborates public policies that alter property taxes, such as assessment reform and state aid.This book introduces the concept of property tax capitalization and discusses the importance of tax capitalization for public policy. The topics include the simple algebra of property tax capitalization, inherent econometric difficulties, and household utility maximization problem. The anticipation of revaluation, revaluation in Brockton, and nonlinear two-stage least squares estimator are also described. This text likewise covers the estimates of the degree of property tax capitalization and horizontal equity of tax rate changes.This publication is recommended for academics, public officials, and homeowners.

1 What Is Property Tax Capitalization? 1. What Is Property Tax Capitalization? 2. What Does This Book Contribute? 3. How Does Property Tax Capitalization Arise? 4. Why Does Property Tax Capitalization Matter? 5. How Is This Book Organized?2 A Review of Previous Empirical Studies of Property Tax Capitalization 1. The Basic Capitalization Equation 1.1 The Simple Algebra of Property Tax Capitalization 1.2 Inherent Econometric Difficulties 2. Studies before 1980 2.1 Aggregate Studies 2.2 Micro Studies 2.3 Micro Studies Based on Tax Changes 3. Studies Since 1980 3.1 Aggregate Studies 3.2 Micro Studies 3.3 Studies Based on Tax Changes 3.4 Summary 4. Conclusions3 A Theoretical Analysis of Intrajurisdictional Property Tax Capitalization 1. Overview 2. The Basic Theory of Property Tax Capitalization 2.1 House Values, Rental Flows, and Property Taxes 2.2 The Household Utility Maximization Problem 2.3 The Degree of Capitalization 3. The Setting: Revaluation in Massachusetts 4. Deriving an Estimating Equation 4.1 Translating the Capitalization Equation into Change Form 4.2 Deflating House Values: Removing Interjurisdictional Change 4.3 Mortgage Transactions and Federal Income Taxes 4.4 Anticipation of Revaluation 4.5 Changes in Relative Housing Prices and in Housing Characteristics 4.6 Correcting for Simultaneity 5. Summary4 Sample Communities, Data Sources, and Revaluation Histories 1. Community Selection 2. Description of the Sample Communities 3. Data Sources 4. Revaluation Histories 4.1 Overview 4.2 Revaluation in Waltham 4.3 Revaluation in Brockton 5. Conclusions5 Econometric Methodology 1. Identification of the Basic Model and the Full Model 2. The Nonlinear Two-Stage Least Squares Estimator 3. A Linear Approximation 4. Summary6 Estimates of Intrajurisdictional Property Tax Capitalization in Massachusetts 1. Linear Estimation Results 1.1 Estimates of the Degree of Property Tax Capitalization 1.2 The Importance of Methodology 1.3 Summary 2. Nonlinear Estimation Results 2.1 Estimates of the Degree of Property Tax Capitalization 2.2 The Importance of Methodology 2.3 Summary 3. Anticipation of Property Tax Changes 4. Housing and Neighborhood Characteristics 5. Restrictions on the Components of Property Tax Rate Changes 6. Conclusions7 Property Tax Capitalization and Public Policy 1. Interpretation of Capitalization Estimates 1.1 Why is the Degree of Capitalization Less than 100%? 1.2 Why Does the Degree of Capitalization Vary Across Communities? 1.3 Modeling the Degree of Property Tax Capitalization 2. The Assessor's Problem 3. Capitalization and the Economic Efficiency of the Property Tax 3.1 The Efficiency Consequences of Assessment Errors 3.2 The Efficiency Consequences of Interjurisdictional Tax Rate Differences 4. Capitalization and the Horizontal Equity of the Property Tax 4.1 The Horizontal Equity of Tax Rate Changes 4.2 The Case for Assessment Reform 5. The Distribution of Gains and Losses from Revaluation in Waltham 6. Capitalization and the Vertical Equity of the Property Tax 7. ConclusionsAppendix A Data Sources 1. Sales and Assessment Data 1.1 Description of Major Data Sources 1.2 Data Collection by Community 2. Housing and Neighborhood Characteristics 2.1 Waltham 2.2 Brockton 3. Nominal Tax RatesAppendix ¿ Housing Price IndicesAppendix C Complete Estimation ResultsReferencesIndex