Cabral & Hoxby (2012): The Hated Property Tax

Overview

"The Hated Property Tax: Salience, Tax Rates, and Tax Revolts" is a 2012 NBER working paper (No. 18514) by Marika Cabral and Caroline Hoxby, both then of Stanford's economics department.[1] The authors argue that because it is normally paid directly and visibly (rather than withheld, as income and payroll taxes are), "property taxes are likely the most salient taxes in the U.S."[1] They note that the property tax also "has fairly unique politics": people "report disliking the property tax more than any other tax," and — the paper's own words — "[u]nlike all other major taxes, property taxes have fallen in relative terms," declining from 3.3 to 2.5 percent of GDP between 1970 and 2000 while other taxes rose from 28.9 to 35.5 percent of GDP.[1] The paper hypothesizes that the property tax's high salience is part of what drives this unusual politics.

To test this, Cabral and Hoxby exploit variation in tax escrow — the common mortgage-servicing arrangement in which a lender collects the property tax in small amounts folded into the monthly mortgage payment and remits it on the owner's behalf, making the tax far less salient to the payer. Using survey evidence and geographic/temporal variation in escrow (instrumented via bank holding companies' mortgage-servicing assets), they find that areas where the property tax is less salient — because escrow hides it — have higher property tax rates and are less likely to experience property tax revolts.[1] The paper's provocative implication is that voters facing a non-benevolent government may rationally want their taxes to stay highly salient, even though salience is exactly what makes those taxes so resented.

See Also

• Proposition 13 — the canonical US property-tax revolt this paper's salience mechanism helps explain
• Tax Capitalization — the related mechanism by which property/land tax changes are absorbed into asset prices
• Land Value Tax — the Georgist proposal that must reckon with property-tax unpopularity when built on the existing property-tax administrative apparatus
• Rethinking the Economics of Land and Housing — surveys the same political-salience problem for LVT reform (Ch. 7, §7.3)

Sources

1. Marika Cabral & Caroline Hoxby, "The Hated Property Tax: Salience, Tax Rates, and Tax Revolts," NBER Working Paper No. 18514, November 2012 — used for the paper's thesis, methodology (tax escrow as a salience instrument), and headline findings (abstract and pp. 1-2). NBER · PDF
2. Josh Ryan-Collins, Toby Lloyd & Laurie Macfarlane, Rethinking the Economics of Land and Housing (2017), Ch. 7, §7.3 — used for the discovery context: the book independently raises property-tax visibility and unpopularity as a practical obstacle to LVT reform, the same theme Cabral & Hoxby document empirically. Cited here for the shared theme only; the book is not claimed to cite this specific paper. See the wiki's book summary.