property tax delinquencies’ effects on revenue volatility...
TRANSCRIPT
Propertytaxdelinquencies’effectsonrevenuevolatilityinAmericancities:
ExaminingtheoutcomesoftheGreatRecession.
OlhaKrupa,Ph.D.AssistantProfessorInstituteofPublicServiceSeattleUniversity90112thAve,P.O.Box222000,SeattleWA98122Email:[email protected]:206-296-2509
KennethA.KrizRegentsDistinguishedProfessorofPublicFinanceDirector,KansasPublicFinanceCenterWichitaStateUniversity1845FairmountStreetWichita,KS67260-0155Email:[email protected]:316.978.6959
Abstract
Thisstudypresentsastylizedinteractivemodelofhomeprices,propertytaxcollectionratesandsocioeconomicindicatorsintheUScitiesbeforeandduringtheGreatRecession.Usingapanelofthe147largestAmericancitiesin2003-2012,thisresearchexploreshowdifferencesinincomes,populationgrowth,homepricedynamics,andelementsofthelocalpropertytaxsystemsaffectthelocalgovernmentfinancesinrecessionperiods.Correctingforendogeneityintheseinteractionsbyusingseeminglyunrelatedregressionsandathreestageleastsquaresmethod,thestudyfindsthateconomicdownturnsresultintwoeffects:thefirsteffectisthattherecessionhasanegativeeffectonhousingprices,whichistranslatedintolowerassessedvaluations.Thesecondeffectcompoundsthenegativefiscalimpactbyreducingpropertytaxcollectionratesandincreasingdelinquencies.However,wefindnoevidenceofa“takeback”reactionfromjurisdictionsinsettingmillagerates.Thefirsttwoeffectscaninducemuchlargerfiscalimpactsonlocalgovernmentsduringrecessions.
KeyWords:revenuevolatility,propertytax,assessedvalues,collectionrates,delinquency,GreatRecession.
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Introduction
Propertytaxincomeprovidesthemostsignificantfundingsourceforlocalgovernmentsin
theUnitedStates.Thatincomeiscrucialforessentialpublicservicesincludingpoliceand
firedepartments,andnumeroussocialprograms.Becausecitiesarelimitedintheirdebt
issuancecapacity,thestabilityofincomefrompropertytaxesisnecessaryforcitiesto
provideeffectivemunicipalservices.Numerousfactors,includinghousingprices,
foreclosurerates,unemployment,incomegrowth,anddelinquencyratesinpropertytax
collectioninfluencetheextenttowhichthatincomevaries.Shortfallsinpropertytax
revenueundercutacity’sabilitytofundtheseessentialpublicservices.
DuringtheGreatRecession,atboththefederalandstatelevels,taxesonincomeandon
consumptionofgoodsandserviceswerethehardest-hitsourcesofgovernmentrevenue.At
thelocallevel,propertytaxrevenuesdidnotdeclineasmuch:therefore,atleastpartially
compensatingforlossesinotherrevenuecategories(Ihlanfeldt2011,Almetal2011,
MikesellandCheoul2013,MikesellandMullins2013).Earlystudiesoftherecessionagree
thathigherpropertytaxassessmentsandgrowingtaxburdensprovidedforanoutstanding
resilienceinthepropertytaxcollectionsduringthemostrecenteconomicdownturn.The
authorsofthosestudies,however,recommendextensivefollowupontheirfindings
assumingthatduetoasignificanttimelagbetweenpropertytaxassessmentsandactual
collectionsthisdocumentedrobustpropertytaxperformancewillweakeninthecoming
years.
AmongearlierstudiesoftaxincomeduringtheGreatRecession,thereremainsagapin
understandinghowinthemidstofthehousingcrisispropertytaxescontributedtolocal
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revenues,andwhethertheearlierstudiesfeaturedadataperiodtooshorttofullycapture
whathappenedwithpropertytaxationduringtherecession.Similarly,scholarsdonotyet
understandhowthespecificinteractionsofthemarketandtheadministrativefeaturesofa
municipalityaffectpropertytaxrevenues.Inanefforttounderstandthosefactorson
revenuevolatility,thisresearchproposestoanswerthefollowingquestions:
1) Howdodecliningpropertytaxescollectionrates,housevalues,andincomesin
combinationwithemploymentpatternsofcityresidentsinteractinthelargesturban
areasoftheUnitedStates?
2) Whatfactorsmakesomecitiesconsistentlymoresuccessfulinsecuringtheirnecessary
taxrevenuethanothers,andhowdoregionalandlocalvariationscontributetothese
differences?
3) Inanticipationofthenexteconomicdownturn,whichpolicyrecommendationscould
mosteffectivelyaddressandimprovepropertytaxadministration?
Thisresearchdocumentspropertytaxcollectiontrendsoveradecadeof2003-2012across
thelargestAmericancities,notinganyregionalvariation,explainstheinteractioneffects
betweenpropertytaxcollectionrates,housevalues,income,andemploymentpatternsof
cityresidentsleadingtoshort-termvolatilityoflocalgovernmentrevenues,andprovides
policyrecommendationstocityplannersandbudgetanalystsonhowtheseinstitutional
factorsmayaffecttheirabilitytofundpublicservicesduringrecessions.Figure1motivates
thestudybyillustratingtherelationshipbetweenthechanginghomepricesandthe
relativegrowthinthesignificanceofthepropertytaxintotalrevenuesofthelargestUS
citiesbeforeandduringtheGreatRecession.
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Figure1.Homepricedynamicsandthegrowthofpropertytaxrevenueshareintotalrevenuesinthe147largestUSCities(2003-2012).
Thisstudyexplorestheserelationshipswithadatapanelforthe147largestUScitiesin
2003-2013.WeemploySeeminglyUnrelatedRegressionsandThree-stageLeastSquares
methodstocorrectforendogeneityamongvariables.Theresultsbroadlysupportthe
modelwhereeconomicdownturnshavetwoeffects:thefirsteffectisthattheeconomic
downturnnegativelyaffectshousingprices,whichistranslatedintolowerassessed
valuations,andthesecondeffectreducespropertytaxcollectionratesthereby
compoundingthenegativefiscalimpact.Therefore,inareaswithsubstantialeconomicand
housingmarketdownturns,notonlyisthepropertytaxlevyfalling,thecollectionofthe
levyisfallingaswell.Thiscaninducemuchlargerfiscalimpactsonajurisdiction.Ona
positivenote,thestudyfindsnoevidenceofa“takeback”reactionfromjurisdictionsin
settingtaxrates.Raisingtaxratesduringaneconomicdownturncouldcreateevenmore
problematiceconomicconditions.
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2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
PT/totalrevenues Houseprices
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Inwhatfollows,thenextsectiondescribestheliteratureontheinteractionsbetween
propertytaxcollections,assessedvalues,andbasicsocioeconomicindicatorsinAmerican
citiesandcountiesbeforeandduringtheGreatRecession.SectionIIIoutlinesthestudy
methodsanddata.SectionVdescribesthefindingsgainedfromthestudy,whilesectionVII
concludesthestudywiththediscussionofresults.
AReviewoftheLiterature:RevenueVolatilityandMunicipalFiscalHealth
“Indeed,localgovernmentrelianceonthepropertytaxratherthanonmoreelasticrevenuesourceslikeincome,sales,andexcisetaxeshas—sofar,inanyevent—helpedlocalgovernmentstoavoidsomeofthemoreseveredifficultiesexperiencedbymanyothergovernmentsinthe“GreatRecession”thatlastedofficiallyfromDecember2007toJune2009”.JamesAlm,2013.
StudiesoftheGreatRecessionacknowledgethepivotalroleofthepropertytaxin
stabilizinglocalrevenuestreams.Scholarsdocumenttheunexpectedresilienceinproperty
taxrevenuesduringtherecessionyears:notonlypropertytaxrevenuesdidnot
significantlydeclineduringtheGreatRecession,butalsotosomeextenttheyhave
compensatedthelocalgovernmentsforthelossofsales’andincometaxrevenues.Because
ofaconsiderabletimelagbetweenthehousepricemovementsandtheassessedvalue
adjustments,theunpopular,inelastic,and“inconvenient”propertytaxhasbecomethebest
revenuesourceduringtheGreatRecession(MikesellandMullins,2010;Ihlanfeldt,2011;
Almetal.,2011;Alm,2013;MikesellandLiu,2013;Rossetal,2015).Inwhatfollows,we
reviewthestudiesofthestateandlocalgovernmentresponsestotheGreatRecessionin
theUnitedStates.
Insurveyingstateandlocaltaxrevenuetrendsin1989-2009,MikesellandMullins(2010)
documentsignificantdeclinesinstateandlocalincomeandsalestaxesduringtheyearsof
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theGreatRecession.Duringthoseyearsthestatepersonalincometaxrevenuescontracted
by10.3percent,accompaniedbythe4.6and2.6percentdeclinesinsalestaxrevenuesat
thestateandlocallevels.Asignificantincreaseinpropertytaxcollections(6.3percent)
stabilizedothermorevolatilelocalrevenuestreams.Propertytaxcollectionshavebeen
“theonlybrightspot”instateandlocalfinancesduringrecessionyearsattributingtothe
modestoverallincreaseinlocalrevenuesandsuperiorfinancialperformanceoflocal
governmentsascomparedtostates.Thesecontemporaneousfindings,however,oughtto
beinterpretedwithcautionduetotimelagsextendingrecessioneffectswellbeyondthe
yearsoftheGreatRecession.
Lutz(2008)examinesaneffectbetweenhousepricesandpropertytaxcollectionsand
estimatesa3-yeartimelagbetweenthosebasedona1985-2005Census.Inhisstudythe
elasticityoflocalrevenuestohousepriceincreasesis0.4.Lutzconjecturesthatthe
remaining0.6ofthepriceeffectisabsorbedbymillageratereductionsandotherpolicy
changes.
AfollowupstudybyLutz,Byron,MolloyandShan(2010)explorestheeffectofhouseprice
declinesonstatetaxrevenuesbasedonsimilardata(1975-2007).Theseauthorsdocument
variedstateresponsestofiscalcrisisandstudylagsbetweenthehousingcrisisoutbreak
andstaterevenuedeclines.AttributingmostoftherevenuedeclinetotheRecession,the
authors’estimatesoftheeffectofthehousingmarketcollapseontotalstaterevenuesareat
fifteenbilliondollars,ortwopercentofthetotalstaterevenues.
AnticipatingRecession,Chernick,LangleyandReschovsky(2011)estimatetheeffectofthe
housingmarketcontractiononcentralcityspendingatsevenpercentonaverage,whilethe
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thatthehardest-hitinnercitiesmayexperienceevenmoresignificantspendingcuts.This
studyhasbeendonebasedonasampleofsyntheticallyconstructedcitiesin1997-2008.
BoydandDadayan(2009;2010),CenteronBudgetandPolicyPriorities(2010)and
MikesellandLiu(2013)noteconsiderableheterogeneityinstateandlocalgovernment
responsestotheGreatRecession.Thisregionalvariationisattributedtotheirdiverse
economicnature,thediversityofthestatepropertytaxsystems,differencesinhousing
marketdynamics,andinsocioeconomicindicators.Forexample,studiesindicatethat
statesthathadbeensignificantlyaffectedbytheGreatRecessionmorepromptlyresorted
tospendingcuts(BoydandDadayan,2010).
MikesellandLiu(2013)connecttaxassessments,taxrevenues,andcollectionratesinto
onefiscalsysteminordertostudyfinancialconsequencesoftheGreatRecessiononone
hundredlargestUScitiesover1999-2011.Onacitylevel,theynote,propertytaxstability
dependsonpropertytaxbaseandpropertytaxrevenuedynamics.Theyfindthatthe
housingcrisisdidnotimmediatelyresultinreducedtaxcollectionsduetoaconsiderable
timelag.Expectingfuturerevenueinterruptionsoftheotherwisestablepropertytax
collections,thisstudyshowsdecreasesincollectionratesinselectcities.Althoughthe
studyfindsnoevidenceofsuchinterruptionsinrevenuecollectionsjustyet,these
delinquencyrateincreasesmaybeasignofconcern.
InastudyofcitiesandcountiesIhlanfeldt(2011)estimatesshort-runfirst-yearrevenue
elasticitiestopropertytaxratechangesbasedona1995-2009Floridasample.These
elasticitiesforcitiesandcountiesrangebetween(0.097)-(0.212).Ihlanfeldtconjectures
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thatmillagerateincreasesfullyoffsetrevenueshortfallsinFloridacounties,whilecities
stabilizetheirpropertytaxrevenuesbothwithrateincreasesandspendingcuts.
Exploringinteractionsbetweentheeffectsofthehousingcrisisandpropertytaxrevenues
basedona1994-2008Floridasample,DoernerandIhlanfeldt(2010)establishthe
relationshipbetweenper-capitarevenuesandhomevaluesthroughseveralchannels
includingassessedvalues,millagerates,taxbaseexpansionfromnewconstruction,and
non-taxrevenuesources.Asignificanteffectonpropertytaxrevenuescomesfromthetax
base,theynote,whilethereisnorelationshipbetweenhomepricesandpropertytax
revenues.Thispapersuggeststhatassessorsbetterreacttohomepriceincreasesthan
decreases.However,ifhomepricedecreaseswerelong-termandsubstantial,theassessors
wouldeventuallyhavetorespondbyloweringassessedvaluations.
Infollow-upstudy,IhlanfeldtandWillardsen(2014)examineasampleofFloridacitiesand
countiesorganizedintosixgroups:thelarge,mid-sizeandsmallcohortsofcitiesand
countiesovertheperiodof1995-2011.Thatstudyfindsthatcitiesmoreeffectivelyaddress
revenueshortfallscomparedtocounties,andtheydothatviamillagerateincreasesand
programcuts.OfallexaminedFloridacities,thelargestoneswereabletomorefullyoffset
millageratescomparedtomid-sizeandsmallcities.
Alm,BuschmanandSjoquist(2014)findthatchangesinpercapitaincome,population,and
employmentlevelssignificantlyaffectchangesinthetaxbase,whileincreasesin
foreclosuresnegativelyaffectingpropertytaxrevenuesthroughreductionsintaxlevy.
Theyillustratethenegativeimpactof“new”foreclosuresonpropertytaxlevies,taxbases,
andpropertytaxrevenuesinGeorgiabetween2006and2011.
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CromwellandIhlanfeldt(2015)studytheeffectsoftheGreatRecessionthroughthelensof
governmentcompetitionliterature.Thehypothesisoftheirstudyisthatlocalgovernment
responsesdependonthedegreeoflocalgovernmentmonopolyinlocaljurisdictions.Their
elasticityofmillageratestopropertytaxbaseare(0.27)and(0.34),andto
intergovernmentaltransfers-(0.004)and0.002forFloridacitiesandcounties.Again,the
citymillagerateincreasesandprogramexpenditurecutsweremoderatelyelasticwith
respecttorevenueshortfalls,whileintergovernmentaltransfercutswerehighlyinelastic
duringtheGreatRecession.
Ross,YanandJohnson(2015)examinefinancialsofthethirtyfivelargestUScitiesinthe
wakeoftheGreatRecession.Theyfindthatthesecitiesfaredsurprisinglywellprimarily
becauseofthestablerevenuesfrompropertytaxes.Asintergovernmentalgrantsand
transferflowsdriedoutduringrecessionyears,citiesresortedtodepletingtheirnetassets
andborrowingmore.DuringtheGreatRecession,thesecitiesincreasinglyreliedon
propertytaxesandevenmoreondeficitfinancing,previouslyanunconventionalfinancing
vehicleforthemunicipalgovernments.Thestudymentionsthatcitiesreturntofinancial
stabilityofpre-recessionlevelsbyabout2011.
TheModel
Theresearchmodelconjecturesthatdeclinesinlocaleconomicconditions,housingprices,
andpropertytaxcollectionratescollectivelyattributetorevenuevolatilityandshort-term
budgetshortfallsforlocalgovernments.Thiseconomicandfiscaleffectisfurther
exacerbatedbyweakeconomyinrecessionperiods.Figure2providesastylized
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relationshipmodelbetweenhousingmarketandeconomicconditions,propertytax
administrationvariables,andlocalgovernmentrevenuesfrompropertytaxes.
Figure2.Elementsofthepropertytaxsystemandpropertytaxrevenues:thechannelsofinfluence.
Theserelationshipscanbeexpressedviathefollowingsystemofequations:
∆𝐻𝑜𝑢𝑠𝑒𝑝𝑟𝑖𝑐𝑒!" = 𝛼 + 𝛽!∆𝐼𝑛𝑐𝑜𝑚𝑒𝑃𝑒𝑟𝐶𝑎𝑝𝑖𝑡𝑎!" + 𝛽!∆𝑈𝑛𝑒𝑚𝑝𝑙!" + 𝜀!∆log (𝐴𝑉)!" = 𝛾 + 𝛽!∆𝐻𝑜𝑢𝑠𝑒𝑝𝑟𝑖𝑐𝑒!" + 𝛽!𝑅𝑎𝑡𝑖𝑜!" + 𝜀!
∆𝑇𝑎𝑥𝑅𝑎𝑡𝑒!" = 𝛿 + 𝛽!∆log (𝐴𝑉)!" + 𝛽!∆𝐼𝑛𝑐𝑜𝑚𝑒𝑃𝑒𝑟𝐶𝑎𝑝𝑖𝑡𝑎!" + 𝛽!∆𝑈𝑛𝑒𝑚𝑝𝑙!" + 𝜀!∆𝐹𝑖𝑟𝑠𝑡𝑌𝑒𝑎𝑟𝐶𝑜𝑙𝑙𝑒𝑐𝑡𝑖𝑜𝑛𝑠!" = 𝜁 + 𝛽!∆𝐼𝑛𝑐𝑜𝑚𝑒𝑃𝑒𝑟𝐶𝑎𝑝𝑖𝑡𝑎!" + 𝛽!∆𝑈𝑛𝑒𝑚𝑝𝑙!" + 𝜀!
(1)
where∆𝐻𝑜𝑢𝑠𝑒𝑝𝑟𝑖𝑐𝑒!"isthefirstdifferenceinaveragehomepricechange;
∆𝐼𝑛𝑐𝑜𝑚𝑒𝑃𝑒𝑟𝐶𝑎𝑝𝑖𝑡𝑎!"isthefirstdifferenceinpercapitaincome;∆𝑈𝑛𝑒𝑚𝑝𝑙!"isthefirst
differencetherateofunemployment;∆log (𝐴𝑉)!"isthefirstdifferenceinnatural
logarithmsoftotalassessedvalues;𝑅𝑎𝑡𝑖𝑜!"istheassessmentratio,orthelevelof
assessmentineachjurisdiction;∆𝑇𝑎𝑥𝑅𝑎𝑡𝑒!"isthefirstdifferenceintotalpropertytaxrates
House Prices
Socioeconomic Conditions
Property Tax Revenues
Assessed Values
Tax Rates
Rate Limitations
Assessment Levels
Collection Levels
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ofanassessingjurisdiction,∆𝐹𝑖𝑟𝑠𝑡𝑌𝑒𝑎𝑟𝐶𝑜𝑙𝑙𝑒𝑐𝑡𝑖𝑜𝑛𝑠!"isthefirstdifferenceinfirst-year
collectionratesofanassessingjurisdiction.α,γ,δ,andζaretheconstantterms.ε1,ε2,ε3,
andε4aretheerrortermsintheequations.Subscriptsi,tidentifycityandyearforeach
observation.
DataandMethodology
Inordertotestthehypotheseslaidoutabove,weobtaineddatafrom147largestUScities
(populationover150,000)overaten-yearperiodfrom2003-2012.Thecitieswere
geographicallydistributedthroughouttheUnitedStates,asshowninTable1.Westernand
Southeasterncitieshavesomewhatgreaterrepresentationinthesamplecomparedto
NortheasternandSouthwesterncities.
Table1.GeographicDistributionofSampleCities.
Region NumberofCitiesinSampleMidwest 27Northeast 12Southeast 37Southwest 22West 49TotalSample 147
Figure2illustratestheregionaldifferencesinhomepricedynamicsandgrowthratesin
propertytaxrevenuesasapercentageoftotalrevenuesbasedonthesedata.
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Figure2.Regionaldifferencesinhousepricedynamicsandpropertytaxrevenuegrowthrates(2003=100%)
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2003200420052006200720082009201020112012
Southwest
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20032004 2005 2006 2007 2008 2009 2010 2011 2012
Midwest
0.6
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2003200420052006200720082009201020112012
Northeast
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20032004 2005 2006 2007 2008 2009 2010 2011 2012
West
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20032004 2005 2006 2007 2008 2009 2010 2011 2012
NewYorkCity
Propertytaxrevenues Houseprices
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Table3showsthevariablesinourdatasetaswellasthesourcesofthedata.
Table3.Variables,Definitions,andSourcesofData.
VariableName Definition SourcePTRevenue PropertyTaxRevenue($
millions)ComprehensiveAnnualFinancialReports
TotalRevenue TotalRevenue($millions) ComprehensiveAnnualFinancialReports
IncomePerCapita PerCapitaIncome USBureauoftheCensusUnempl UnemploymentRate USBureauofLaborStatisticsPopulation CityPopulation USBureauoftheCensusAV AssessedValuation($
millions)ComprehensiveAnnualFinancialReports
Ratio AverageAssessmentRatio PTLevy PropertyTaxLevy($millions) ComprehensiveAnnualFinancial
ReportsFirstYearCollections CollectionsofPropertyTaxes
dueinCurrentYearComprehensiveAnnualFinancialReports
TotalCollections CollectionsofPropertyTaxesdueinCurrentandPriorYears
ComprehensiveAnnualFinancialReports
TaxRate MillageRate($/$1,000inAssessedValue)
ComprehensiveAnnualFinancialReports
CPI ConsumerPriceIndex–AllUrbanConsumers
USBureauofLaborStatistics
Houseprice FHFAHomePriceIndex($thousands)
USFederalHousingFinanceAgency
Thesummarystatisticsforthedata(Table4)showmarkeddeviationfromnormalityfor
therevenueandlevyvariables.Asthesevariablesarelowerboundedbyzero,weestimate
ourmodelsusingthenaturallogofthevalues.Theeconomicvariableshaveapproximately
normaldistributions.Populationissimilarlyskewed,fromthesummarystatisticsitisclear
thatthesamplemainlyconsistsofmid-to-largesizedcities.
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Table4.DescriptiveStatisticsfortheSample.
Variable Mean Std.Dev. Minimum MaximumPTRevenue 472.01 2,030.73 2.66 19,513.45TotalRevenue 1,394.98 6,806.83 33,584.00 67,005.64IncomePerCapita 33,302.08 10,236.71 9,762.00 79,967.00Unempl 6.99 3.07 2.00 24.80Population 455,866.50 784,067.40 152,374.00 8,175,133.00AV 26,861.90 44,735.28 12.87 411,135.20Ratio 76.52 32.69 10.48 100.07PTLevy 341.12 1,501.96 2.40 19,284.50FirstYearCollections 95.95 4.65 55.15 128.15TotalCollections 98.32 3.60 60.06 128.30TaxRate 5.20 9.75 0.06 65.48CPI 1.13 0.08 1.00 1.25Houseprice 202.92 48.02 100.08 416.61
Figure3showsoneadditionalproblemforestimatingourmodel.Themeanofthefinancial
variables(inthiscaseassessedvaluation)isnotstationaryovertime.Theproblemisthat
thereislikelytobeserialcorrelationinobservations.Therefore,weestimateamodelin
firstdifferences,relatingthechangeinthefinancialvariablestochangesinthepredictor
variables.Thismodelformulationshouldalsoaccountforpotentialunobserved
heterogeneitysincethepropertiesoftheestimatorresemblea“meandifference”fixed-
effectsestimator.
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Figure3.MeanofAssessedValuation.
Afinalissueconcernsendogeneity.Previouspapers(e.g.,MikesellandLiu,2013)donot
accountforendogeneityinthetaxratesettingprocess.Legislativebodiesmayactto“take
back”somegainsinassessedvaluesbyadjustingtaxratestoachievepolicyand/orpolitical
goals.Also,aswesetforthinourtheoreticalmodel,somecommonexogenousvariables
exhibiteffectsnotjustonasinglevariable,butonthesystemasawhole.Therefore,we
employbothSeeminglyUnrelatedEquationsandthree-stageleastsquares(3SLS)
estimatorstoaccountforthisendogeneity,specifyingthefollowingsystem:
∆𝐻𝑜𝑢𝑠𝑒𝑝𝑟𝑖𝑐𝑒!" = 𝛼 + 𝛽!∆𝐼𝑛𝑐𝑜𝑚𝑒𝑃𝑒𝑟𝐶𝑎𝑝𝑖𝑡𝑎!" + 𝛽!∆𝑈𝑛𝑒𝑚𝑝𝑙!" + 𝜀!∆log (𝐴𝑉)!" = 𝛾 + 𝛽!∆𝐻𝑜𝑢𝑠𝑒𝑝𝑟𝑖𝑐𝑒!" + 𝛽!𝑅𝑎𝑡𝑖𝑜!" + 𝜀!
∆𝑇𝑎𝑥𝑅𝑎𝑡𝑒!" = 𝛿 + 𝛽!∆log (𝐴𝑉)!" + 𝛽!∆𝐼𝑛𝑐𝑜𝑚𝑒𝑃𝑒𝑟𝐶𝑎𝑝𝑖𝑡𝑎!" + 𝛽!∆𝑈𝑛𝑒𝑚𝑝𝑙!" + 𝜀!∆𝐹𝑖𝑟𝑠𝑡𝑌𝑒𝑎𝑟𝐶𝑜𝑙𝑙𝑒𝑐𝑡𝑖𝑜𝑛𝑠!" = 𝜁 + 𝛽!∆𝐼𝑛𝑐𝑜𝑚𝑒𝑃𝑒𝑟𝐶𝑎𝑝𝑖𝑡𝑎!" + 𝛽!∆𝑈𝑛𝑒𝑚𝑝𝑙!" + 𝜀!
(1)
Results
Theresultsforthethree-stageleastsquaresestimationofequation(1)areshowninTable
5.Theseresultsbroadlysupportthemodelwhereeconomicdownturnshavetwoeffects.
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Thefirsteffectisthatthedownturnintheeconomyhasanegativeeffectonhousingprices,
whichistranslatedintolowerassessedvaluations.Thesecondeffectcompoundsthe
negativefiscalimpact.Aneconomicdownturnalsoreducespropertytaxcollectionrates.
Therefore,inareaswithsubstantialdownturns,notonlyisthepropertytaxlevyfalling,the
collectionofthelevyisfalling.Thiscaninducemuchlargerfiscalimpactsonajurisdiction.
Wefurtherfindnoevidenceofa“takeback”reactionfromjurisdictionsinsettingtaxrates.
Inthecontextofourinquiry,thisshouldbeseenaspositive.Raisingtaxratesduringan
economicdownturncouldcreateevenmoreproblematiceconomicconditions.Onecaveat
withthisfindingisthatourmodel–aswithmostotherresearchinthisfield–isashort-
termmodelonly.Theremaybedynamiceffectsthatrevealthemselvesovertime.This
wouldbeaproductivelineofinquiryforfutureresearch.
Thegoodnessoffitmeasuresshowsthatwehaveafairlygoodmodelofhousingpricesand
asufficientmodeloftheotherdependentvariablesinthesystem.Onemayquestionthe
loworevennegativeR2valuefortheTaxRatevariable.Thoughthisvariableisimportant
inthemodeltoassessjurisdictionalresponses,itisdifficulttomodelthisvariable.We
examinedtaxratechangesinthesample.Inmostcases,theannualchangesintaxrates
wereverysmall,sotheyaredifficulttomodel.Tous,thisindicatessupportforourstory,
namelythatthereisnoevidencethatjurisdictionsarechangingtaxratesinasubstantial
wayinordertoaffectfiscaloutcomes.
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Table5.ResultsofEstimationofEquation(1).
DependentVariable IndependentVariableSURCoefficient(Z-stat.)
3SLSCoefficient(Z-stat.)
D.houseprice D.IncomePerCapita(000s) 0.210 0.214 (1.27) (1.29) D.Unempl -8.238 -8.235 (18.15)** (18.14)** Constant 3.359 3.351 (4.31)** (4.30)**D.log(AV) D.houseprice 0.002 0.002 (6.77)** (3.60)** Ratio(000s) 0.142 0.141 (0.73) (0.72) Constant 0.030 0.030 (1.93) (1.93)D.TaxRate D.log(AV) 0.178 1.818 (1.69) (0.41) D.IncomePerCapita(000s) -0.591 -0.574 (1.50) (0.52) D.Unempl 0.022 0.045 (1.58) (0.78) Constant 0.022 -0.053 (0.92) (0.29)D_FirstYearCollections D.IncomePerCapita(000s) -0.085 -0.085 (3.24)** (3.24)** D.Unempl -0.103 -0.102 (2.26)* (2.24)* Constant 0.136 0.136 (1.74) (1.74)N 994 994R2forDep.Variables(significanceofχ2)
D.houseprice 0.258** 0.258**D.log(AV) 0.043** 0.043**D.TaxRate 0.007* -0.234D_FirstYearCollections 0.015* 0.015*
*p<0.05;**p<0.01
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