Property Tax Salience and Payment Delinquency

Sebastien Bradley

No 2012-9, School of Economics Working Paper Series from LeBow College of Business, Drexel University

Abstract: Despite only modest supporting evidence, shocks to households' personal finances are commonly cited as one of the principal causes of homeowner defaults. In this paper, I investigate the extent to which different component sources of annual variation in property tax obligations influence the probability and magnitude of property tax delinquency are likely precursor to mortgage default. Under Michigan's system of property tax limitations, rational homeowners should readily anticipate changes in tax liability, making such changes an unlikely cause of delinquency, regardless of the underlying source. Looking at tax payment records for the city of Ann Arbor, Michigan for the period 2006-2009, I instead find that a household's probability of making late payments, the tardiness of their payments, the amount by which they underpay, or the amount of their resulting interest penalties are all generally greater when changes in property taxes arise through less salient features of the Michigan tax system. This suggests that homeowners, especially new homebuyers, do not rationally anticipate their future tax bills and may instead bear a heavy cost for their inattention to the property tax system.

Keywords: property taxes; delinquency; default; tax salience; limited attention (search for similar items in EconPapers)
JEL-codes: D14 D84 H21 H24 H31 (search for similar items in EconPapers)
Pages: 31 pages
Date: 2012-11-01
New Economics Papers: this item is included in nep-acc, nep-pub and nep-ure
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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Persistent link: https://EconPapers.repec.org/RePEc:ris:drxlwp:2012_009

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