Detroit Property Tax Delinquency---Social Contract in Crisis

James Alm (), Timothy Hodge (), Gary Sands () and Mark Skidmore
Additional contact information
Timothy Hodge: Department of Economics, Allegheny College
Gary Sands: Urban Planning Program, Wayne State University \end{minipage}

No 1508, Working Papers from Tulane University, Department of Economics

Abstract: As the country reemerges from the real estate crisis, the City of Detroit, Michigan continues to struggle, and is currently in the midst of bankruptcy proceedings. Falling property values have led to significant reductions in property tax revenues. In addition, the rate of property tax delinquency in Detroit is 48 percent, resulting in uncollected tax revenues of about 20 percent. This high rate of tax delinquency results from a confluence of factors including limited tax enforcement, feelings of tax inequity, and failure to provide public services, all of which have contributed to a breakdown in the social contract between the City and its residents. In this paper we develop a theoretical model of the individual decision to become delinquent on one's property tax payments. We then use detailed parcel-level data to evaluate the factors that affect both the probability that a property owner is tax delinquent and, conditional upon delinquency, the magnitude of the delinquency. Our estimates show that properties that have lower value, longer police response times, are non-homestead (non-owner occupied residential properties), have a higher statutory tax rate, have a higher assessed value relative to sales price, are owned by a financial institution or by a Detroit resident, are delinquent on water bills, and for which the probability of enforcement is low are more likely to be tax delinquent These findings can be used to inform policies targeted at improving tax compliance within the City.

Keywords: property tax; delinquency; tax compliance (search for similar items in EconPapers)
JEL-codes: H26 H71 (search for similar items in EconPapers)
Date: 2015-08
New Economics Papers: this item is included in nep-ger, nep-iue, nep-pub and nep-ure
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

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