PROPERTY TAXATION IN LOCAL FINANCE: DIFFERENCES IN THE TAX PRICE BETWEEN RENTERS AND OWNER-OCCUPANTS

Renters demand higher levels of local public goods and services than owner-occupants. I suggest the institutional features of the rental housing market create a substantial delay in shifting the property tax bill from landowners to renters and thus reduce the effective tax price to renters.;To test the model, I use cross-sectional data to determine the pattern of shifting changes in property tax bills from landowners to renters. The gross rent for a standard dwelling in each city is regressed on the current and lagged property tax bills (and other variables to control for differences between jurisdictions). The gross rent variable is calculated using hedonic analysis following the work of Malpezzi, Ozanne, and Thibodeau. I use their data for 1974, 1975, and 1976, and use their methodology with information from the Annual Housing Survey to develop comparable data for 1977 to 1980. The property tax variables are calculated for each city in the sample using tax collections, assessed values and assessment ratios.;My hypotheses are: (1) None of the property tax bill is shifted. (2) All of the tax bill is shifted immediately. (3) All of the property tax bill is shifted over time. Using the coefficients from the cross-sectional regression, I was able to reject all three hypotheses. A fourth hypothesis of delayed shifting was tested and could not be rejected.;My conclusion is that the property tax bill is shifted from landowners to renters with a lag, and is not completely shifted over time.;In the model, renters maximize utility over two periods. In the first period, renters benefit from increased services but do not pay the entire property tax bill. As a result of the lag between receiving the benefits and paying the whole tax bill, there is a transfer from landowners to renters. This transfer lowers the effective tax price and thus causes an increase in the quantity demanded.