The housing crisis and state and local government tax revenue: five channels

Byron F. Lutz, Raven S. Molloy and Hui Shan
Additional contact information
Byron F. Lutz: https://www.federalreserve.gov/econres/byron-lutz.htm
Raven S. Molloy: https://www.federalreserve.gov/econres/raven-molloy.htm

No 2010-49, Finance and Economics Discussion Series from Board of Governors of the Federal Reserve System (U.S.)

Abstract: State and local government tax revenues dropped steeply following the most severe housing market contraction since the Great Depression. We identify five main channels through which the housing market affects state and local tax revenues: property tax revenues, transfer tax revenues, sales tax revenues (including a direct effect through construction materials and an indirect effect through the link between housing wealth and consumption), and personal income tax revenues. We find that property tax revenues do not tend to decrease following house price declines. We conclude that the resilience of property tax receipts is due to significant lags between market values and assessed values of housing and the tendency of policy makers to offset declines in the tax base with higher tax rates. The other four channels have had a relatively modest effect on state tax revenues. We calculate that these channels jointly reduced tax revenues by $15 billion from 2005 to 2009, which is about 2 percent of total state own-source revenues in 2005. We conclude that the recent contraction in state and local tax revenues has been driven primarily by the general economic recession, rather than the housing market per-se.

Keywords: Real property and taxation; Income tax (search for similar items in EconPapers)
Date: 2010
New Economics Papers: this item is included in nep-acc, nep-pbe and nep-ure
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Related works:
Journal Article: The housing crisis and state and local government tax revenue: Five channels (2011)
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