Administration, Incidence, and Relief MPA 622: Government Finance

Assessment Approaches Market data or comparable sales approach Income approach Cost or summation approach Reproduction Replacement cost

Property Tax Capitalization Capitalization in theory Tax capitalization Local public good capitalization

Capitalization, [continued] In the more general case, value is the present discounted stream of net income generated by the property:

Capitalization, [continued] With a tax, the value of the property becomes the present value of the net income stream from the property minus the present value of the tax liability:

Capitalization, [continued] If we also recognize that public services are capitalized into value we have

Benefit View, Assumptions Tiebout Model Consumer mobility (voting with feet) and inter-jurisdictional competition are sufficient to provide efficiency in the provision of local public goods/services. Individuals sort into communities according to their demands for local public goods/services. There are enough localities to accommodate all tastes. Local communities are homogeneous in house values.

Benefit View, Implications Perfect capitalization occurs, converting the property tax into a benefits tax. Hence, the property tax is essentially a user charge for local public services. As a benefits charge, there are no impacts on the distribution of income to consider. The tax is non-distortionary and has no efficiency effect.

Discontent and Relief Mechanisms Reduce expenditures Homestead exemptions Preferential assessment Property tax limitations The circuit-breaker mechanism Replacing property tax revenues with other revenue sources