NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Federal Deductibility and Local Property Tax Rates

Douglas Holtz-Eakin, Harvey S. Rosen

NBER Working Paper No. 2427 (Also Reprint No. r1472)
Issued in November 1987
NBER Program(s):   PE

In current discussions of tax reform in the United States, there is considerable controversy concerning the effects of allowing individuals to deduct state and local taxes when calculating their federal income tax liability. Recent econometric work has suggested that federal deductibility of state and local taxes has raised the proportion of these taxes -- especially property taxes -- in local budgets. This paper lends additional support to these earlier findings by showing that one channel through which deductibility leads to higher local property tax revenues is by increasing the rate of local property taxation. Specifically, we find that if deductibility were eliminated, the mean property tax rate in our sample of 82 communities would fall by 0.00715 ($7.15 per thousand dollars of assessed property), or 21.1 percent of the mean tax rate.

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Document Object Identifier (DOI): 10.3386/w2427

Published: Journal of Urban Economics, Vol. 27, No. 3, pp. 269-284, (May 1990).

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