The Assessment Gap: Racial Inequalities in Property Taxation (download)(Online Appendix)
with Carlos Avenancio-Leon; Washington Center for Equitable Growth Working Paper; R&R at Quarterly Journal of Economics
We document a nationwide "assessment gap" which leads local governments to place a disproportionate fiscal burden on racial and ethnic minorities. We show that holding taxing jurisdictions and property tax rates fixed, Black and Hispanic residents face a 10-13% higher tax burden for the same bundle of public services. We decompose this inequality into between- and within-neighborhood components and find just over half of the inequality arises between neighborhoods. We then present evidence on mechanisms. Property assessments are less sensitive to neighborhood attributes than market prices are. This generates spatial variation in tax burden within jurisdiction, and leads to over-taxation of highly minority communities. We also find appeals behavior and appeals outcomes differ by race. Inequality does not arise from either (i) racial differences in transaction prices or (ii) differences in features of the housing stock.
Assessment Caps and the Racial Assessment Gap (download)(Online Appendix)
with Carlos Avenancio-Leon; forthcoming at National Tax Journal
We show that legislative caps on assessment growth are associated with reduced racial inequality in property taxation. These reductions increase in treatment intensity and are largest in highly-minority neighborhoods and low-income neighborhoods, which prior work shows are more susceptible to assessment misvaluations. We provide support for two channels explaining this finding. First, conditional on a binding cap, Black and Hispanic homeowners are exposed to slightly higher home price growth within jurisdiction, which leads to a small mechanical reduction of existing inequality. Second, caps appear to discipline assessor errors by reducing the correlation between neighborhood amenities and erroneously high assessments.
Are Unfunded Public Pension Liabilities Capitalized in Local Real Estate Markets?
Unfunded public pension liabilities are a particular form of public debt, ultimately backstopped by the taxpayer. State and local governments are subject to balanced-budget requirements, and therefore increases in unfunded pension liabilities imply, in expectation, the need to generate additional revenue or to reduce services at some future point. I test whether increased expected costs represented by a shock to unfunded pension liabilities are capitalized into home prices. Using novel, hand-collected data on assets, liabilities, and fund flows for 200 of the largest county and municipal pension funds in the United States, I estimate whether changes in unfunded liabilities predict house price growth. My measure of changes in unfunded liabilities comes from large, plausibly exogenous investment losses during the Great Recession. Using microdata on individual home transactions, I find a negative link between pension liabilities and home price growth, along with strong evidence that these effects are larger for more valuable properties. This suggests wealth-heterogeneity in how local residents weigh the benefits of public expenditures against the costs of public debt, and also shows that municipal financial structure is directly relevant to household financial well-being.
Corporate Subsidies for Economic Development: Evidence on Dynamic Impact
Amazon's public auction for the HQ2 location, which garnered bids from hundreds of cities in amounts commonly exceeding a billion dollars, was a high-profile example of a regular and widespread regional economic development tactic: providing public money as financial incentive to spur business activity. More than 300 billion dollars of public funds have been spent in this manner of the past 25 years. Using a comprehensive data set of corporate subsidies granted by local, state and federal governments, I examine the long term regional impact on public budgets and economic outcomes. I find evidence supporting the regional efficacy of these subsidies through an in-migration channel, suggesting potential strategic interaction effects between areas offering subsidies as a competitive tactic.
with Carlos Avenancio-Leon; Washington Center for Equitable Growth Working Paper; R&R at Quarterly Journal of Economics
We document a nationwide "assessment gap" which leads local governments to place a disproportionate fiscal burden on racial and ethnic minorities. We show that holding taxing jurisdictions and property tax rates fixed, Black and Hispanic residents face a 10-13% higher tax burden for the same bundle of public services. We decompose this inequality into between- and within-neighborhood components and find just over half of the inequality arises between neighborhoods. We then present evidence on mechanisms. Property assessments are less sensitive to neighborhood attributes than market prices are. This generates spatial variation in tax burden within jurisdiction, and leads to over-taxation of highly minority communities. We also find appeals behavior and appeals outcomes differ by race. Inequality does not arise from either (i) racial differences in transaction prices or (ii) differences in features of the housing stock.
Assessment Caps and the Racial Assessment Gap (download)(Online Appendix)
with Carlos Avenancio-Leon; forthcoming at National Tax Journal
We show that legislative caps on assessment growth are associated with reduced racial inequality in property taxation. These reductions increase in treatment intensity and are largest in highly-minority neighborhoods and low-income neighborhoods, which prior work shows are more susceptible to assessment misvaluations. We provide support for two channels explaining this finding. First, conditional on a binding cap, Black and Hispanic homeowners are exposed to slightly higher home price growth within jurisdiction, which leads to a small mechanical reduction of existing inequality. Second, caps appear to discipline assessor errors by reducing the correlation between neighborhood amenities and erroneously high assessments.
Are Unfunded Public Pension Liabilities Capitalized in Local Real Estate Markets?
Unfunded public pension liabilities are a particular form of public debt, ultimately backstopped by the taxpayer. State and local governments are subject to balanced-budget requirements, and therefore increases in unfunded pension liabilities imply, in expectation, the need to generate additional revenue or to reduce services at some future point. I test whether increased expected costs represented by a shock to unfunded pension liabilities are capitalized into home prices. Using novel, hand-collected data on assets, liabilities, and fund flows for 200 of the largest county and municipal pension funds in the United States, I estimate whether changes in unfunded liabilities predict house price growth. My measure of changes in unfunded liabilities comes from large, plausibly exogenous investment losses during the Great Recession. Using microdata on individual home transactions, I find a negative link between pension liabilities and home price growth, along with strong evidence that these effects are larger for more valuable properties. This suggests wealth-heterogeneity in how local residents weigh the benefits of public expenditures against the costs of public debt, and also shows that municipal financial structure is directly relevant to household financial well-being.
Corporate Subsidies for Economic Development: Evidence on Dynamic Impact
Amazon's public auction for the HQ2 location, which garnered bids from hundreds of cities in amounts commonly exceeding a billion dollars, was a high-profile example of a regular and widespread regional economic development tactic: providing public money as financial incentive to spur business activity. More than 300 billion dollars of public funds have been spent in this manner of the past 25 years. Using a comprehensive data set of corporate subsidies granted by local, state and federal governments, I examine the long term regional impact on public budgets and economic outcomes. I find evidence supporting the regional efficacy of these subsidies through an in-migration channel, suggesting potential strategic interaction effects between areas offering subsidies as a competitive tactic.