Property Tax Assessment Practice and Income Elasticities

Abstract

The routines of property tax assessment practiced by state and local governments differ dramatically among jurisdictions. Regardless of particular routine applied (annual assessment, staggered cyclical assessment, or cyclical mass assessment), units often experience wholesale reassessments, and these events have significant impacts on the property tax base. These assessment periods complicate estimates of secular income elasticity of the tax and can, unless corrected, produce forecasts that have unnecessary errors. This paper presents a method for separation of assessment effects from the influence of income changes, applies the method to a cyclical mass assessment state (Indiana), and examines the effects of reassessment on both assessed values and tax levies. Evidence suggests that much of the observed assessed value response over time is reassessment-related. Further, the evidence indicates that, with flexible property tax rates, reassessments are not used as opportunities for concealed property tax levy increases. The findings provide strong support for careful consideration of assessment policy, along with other institutional features, in local fiscal analysis.