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Administration, Incidence, and Relief
MPA 622: Government Finance
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Assessment Approaches
Market data or comparable sales approach Income approach Cost or summation approach Reproduction Replacement cost
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Property Tax Capitalization
Capitalization in theory Tax capitalization Local public good capitalization
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Capitalization, [continued]
In the more general case, value is the present discounted stream of net income generated by the property:
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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:
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Capitalization, [continued]
If we also recognize that public services are capitalized into value we have
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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.
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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.
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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
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