Property Tax Web Series

Abstract

Many scholars have documented inequity in property tax assessment. This paper examines assessment disparities across racial and income groups and documents the impact of reassessment on this disparities. The paper also estimates the extent to which homebuyers expect existing property tax differentials within a jurisdiction to persist and shows how reassessment, and the announcements leading up to it, affect these expectations. We use the 2012 court-ordered reassessment in Allegheny County, Pennsylvania as a natural experiment to study these issues. We match house sales with mortgage data to analyze changes in disparities among racial and income groups. We employ local assessors’ tendency to over- or under-assess properties as instruments to control for the two-way relationship between property taxes and house values, and the repeat sales housing price model to estimate the extent of intrajurisdictional tax capitalization. We find evidence that reassessment is anticipated, that tax changes are capitalized before they take place, and that households anticipate tax changes to be adjusted following an reassessment. Based on our estimate of 30 percent property tax capitalization, we illustrate tax differences in potential housing capital gains or losses and their distribution among households affected by reassessment. 

This paper was presented by Yoon-Jung Choi (Florida International University) on April 21, 2023 as part of the 2022-2023 Syracuse-Chicago Webinar Series on Property Tax Administration and Design. Daniel McMillen (University of Illinois at Chicago) was the discussant for this presentation.