Horizontal and Vertical Inequity in Real Property Taxation

This paper examines the extant literature on horizontal and vertical inequity in the taxation of real property. Some major conclusions from the literature are: (a) horizontal inequity may occur from unequal knowledge of market participants, unequal negotiating skills of buyers and sellers, and actions by officials to limit property tax increases; (b) examples of horizontal inequity include older homes being underassessed relative to newer homes, homes with views being overassessed, and houses with larger lots being underassessed; (c) the degree of horizontal inequity is positively related to the complexity of the jurisdiction's taxing structure; (d) initiatives to limit property taxes such as Proposition 13 create horizontal inequity; (e) models measuring vertical inequity generally examine the relationship between assessed value and market value; (f) studies have attempted to improve the accuracy of vertical inequity models by using simultaneous equations and spline regression; and (g) studies measuring vertical inequity have found both regressive and progressive inequity with slightly more studies finding regressive inequity.