Local property taxes and moral hazard

Svante Mandell

Journal of Property Research, 2003, vol. 20, issue 2, 157-172

Abstract: A double moral hazard approach is used to address efficiency issues associated with local property taxes. It is shown that a local property tax will not lead to an efficient solution. However, despite its inefficiencies it is shown to be in both the local government's and in the property owners' interests to implement such a tax. The underlying reason is that the tax will provide the local government with incentives to take actions that are beneficial for the property owners. Furthermore, the question of risk aversion and its impact on a local property tax is discussed. This is argued to be dependent on what sources of risk exist. Two risk-sources are addressed in the paper. The first stems from uncertainty between actions and resulting revenues, the second from uncertainty in approximating the actual revenues. Both affect the results from the model but in opposite directions and hence the net effect of risk aversion is ambiguous.

Date: 2003
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Citations: View citations in EconPapers (2)

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DOI: 10.1080/0959991032000109526

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