A Reevaluation of the Justifications for Property Tax Exemption

Abstract

A systematic reevaluation of the traditional justifications for property tax exemptions is presented. The paper explicitly considers the effects of exemptions upon local governments. Most traditional arguments for property tax exemptions are not valid today. Considerations of equity and efficiency strongly suggest the elimination of the exemptions, yet the elimination of property tax exemptions for local governments-and perhaps for certain private institutions-would lead to serious practical problems. The paper concludes by recommending a selective elimination of exemptions the property of local governments should continue to be exempt from property taxation, but federal and state property should be subject to local property taxes. The theoretical arguments also suggest eliminating exemptions for eleemosynary, fraternal, and religious organizations, but popular support for such exemptions probably justifies keeping them.

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