Behavioral Responses to Nominal Property Tax Changes: Evidence from Self-Assessed Home Values in U.S. Counties

The extent to which changes in local property taxes are capitalized into housing prices is an ongoing empirical debate, but relatively little is known about whether nominal property tax rates impact house prices or house price perceptions. Conventional capitalization occurs at the time of sale, but behavioral effects can be found by analyzing self-assessed valuations of existing homeowners. This paper contributes to the empirical literature on behavioral house price responses by estimating differences in responses to nominal and average effective property tax rates. The setting is generalized to large United States cities using novel data on county-level nominal property tax rates for more than 100 counties using an event-study design. First, the results suggest that house price perceptions of homeowners are responsive to changes in county-level nominal property tax rates in years of large property tax rate changes, and that this is a purely behavioral response when compared to contract prices. Second, there is little statistical difference between responses to county-level nominal and average effective rates. This implies that homeowners have the same behavioral response to nominal and average effective property tax rates when formulating their self-assessed valuations, indicating a lack of salience in the difference between the two rates.