Purpose: This research seeks to examine the potential for simplified market value and non market value based banded approaches to be utilised for residential property tax purposes. The broad aim is to ascertain whether relatively low complexity approaches to establishing a property tax base can perform adequately in comparison to established best practice. In essence whether there is evidence of equifinality (equivalent performance from approaches of substantially different complexity) between simpler and more complex approaches. Design/Methodology/Approach: The research undertakes empirical analysis of a database of property sales and property attribute data drawn from a UK District Council area. Several simplified methods are used to create different tax base scenarios and the outflowing tax incidence is compared with that of using a complex, industry standard market value approach. The methods of comparison are regression and spline regression based models testing for tax inequity, drawn from the literature. The approach here differs from previous work in that it occurs at the actual tax bill level allowing the comparison of value, non-value and banded approaches.Findings: The findings of the research indicate that simplified approaches to establishing a property tax base can perform in a broadly similar fashion to more complex systems currently practiced in developed economies and therefore evidence of equifinality exists.Originality/value: The research provides evidence of the efficacy of simplified and banded approaches as an option for jurisdictions in developing and transitional economic circumstances or elsewhere in circumstances which mitigate against full scale appraisal of the property tax base to discrete market values. The approaches and techniques pioneered open up opportunities to carry out a range of new comparative analysis of tax base options. The research provides useful tools to property tax policy makers and practitioners in developing and transitional economies in furthering their aspirations of embedding robust property taxes for the furtherance of socio-economic and political development and the general wellbeing of society and are of value to property tax policy makers and to academics in the field.
Bibliographical noteReference text: Allen, MT (2003) "Measuring vertical property tax inequity in multifamily property markets" The Journal of Real Estate Research Vol. 25, No. 2 pp 171-184
Allen, MT, Dare WH (2002) "Identifying determinants of horizontal property tax inequity: Evidence from Florida" The Journal of Real Estate Research Vol. 24, No. 2 September 1: 153-164.
Allen, MT, Dare WH ( 2009) "Changes in Property Tax Progressivity for Florida Homeowners after the "Save Our Homes Amendment"". The Journal of Real Estate Research 31, no. 1 (January 1): 81-92.
Bahl, R, Martinez-Vasquez, J and Youngman, J (Eds) (2008) "Making the Property Tax Work: Experiences in developing and Transitional Countries" Lincoln Institute of Land Policy, Cambridge Massachusetts pp484
Bahl, R, Martinez- Vasquez, J (2007) “The Property Tax in Developing Countries: Current Practice and Prospects” Lincoln Institute of Land Policy Working Paper WP07RB1
Bahl, R, Linn, J (1992) "Urban Public Finance in Developing Countries" Oxford University Press, New York, NY, .
Bahl, R, Wallace, S (2010) “A New Paradigm for Property Taxation in Developing Countries” in Bahl, R, Martinez-Vasquez, J and Youngman, J (Eds) (2010) “Challenging the Conventional Wisdom on the Property Tax” Lincoln Institute of Land Policy, Cambridge Massachusetts pp370
Balas, G and Kovacs, R (1999) "Potential for the Introduction of a Value Based Property tax in Hungary" Journal of Property Tax Assessment and Administration Vol. 4(2) pp. 53-84
Bell, E (1984) "Administrative Inequity and Property Assessment: The Case for the Traditional Approach" Property Tax Journal 3 (June 1984) pp123-31
Benson ED, Schwartz AL Jr. (1997) "Vertical equity in the taxation of single-family homes" The Journal of Real Estate Research 14, no. 3 (January 1): 215-231.
Benson ED, Schwartz AL Jr. (2000) "An examination of vertical equity over two reassessment cycles" The Journal of Real Estate Research 19, no. 3 (May 1): 255-273.
Bird RM, Slack E (2004) “International Handbook of Land and property taxation” Edward Elgar Cheltenham, UK Northampton, MA, USA
Bird RM, Slack E (2007) "An approach to metropolitan governance and finance" Environment and Planning C: Government and Policy 25(5) 729 – 755
Bird RM, Tarasov A V, (2004) "Closing the gap: fiscal imbalances and intergovernmental transfers in developed federations" Environment and Planning C: Government and Policy 22(1) 77 – 102
Bryson, PJ, Cornia, GC (2000) "Fiscal decentralization in economic transformation: the Czech and Slovak cases", Europe-Asia Studies, Vol. 52 No.3, pp.507-22.
Bryson P J, Cornia G C, Wheeler G E, (2004) "Fiscal decentralization in the Czech and Slovak Republics: a comparative study of moral hazard" Environment and Planning C: Government and Policy 22(1) 103 – 113
Burt Review (2006) "A Fairer Way: Report by the Local Government Finance Review Committee" LGRFC Edinburgh
Callan T, Keane C, Walsh JR (2010) “What Role for Property Taxes in Ireland?” The Economic and Social Review Vol. 41, No. 1 Spring 2010 pp.87-107
Cheng, PL (1974) "Property Taxation, Assessment, Performance and its Measurement" Public Finance 29 No 3, 4 (1974) pp. 268-84
Clapp, JM (1990) "A New Test for Equitable Real Estate Assessment" The Journal of Real Estate Finance and Economics 3 No. 3 (September 1990) pp. 233-49
Convention of Scottish Local Authorities (2001) Evidence presented to the Local Government Committee of the Scottish Parliament: Refinements of Council Tax Arrangements, Part 9 - Section 2, COSLA, Edinburgh.
Cornia GC, Walters LC (2005) "Full disclosure: Unanticipated Improvements in Property Tax Uniformity" Lincoln Institute of of Land Policy Working Paper WP05GCI
Cornia GC, Slade BA (2005) Property Taxation of Multifamily Housing: An Empirical Analysis of Vertical and Horizontal Equity. The Journal of Real Estate Research 27, no. 1 (January 1): 17-46.
Davies R, Orton M, Bosworth D (2007) "Local taxation and the relationship between incomes and property values" Environment and Planning C: Government and Policy 25(5) 756 – 772
Davis, PT, Lim, LC, McCluskey, WJ (2004) “Residential Property taxation: A Capital Value Banding Approach” Journal of Property Taxation and Assessment, Volume 1 Issue 3 2004
Department of Finance and Personnel Northern Ireland (2004) "Reform of the Domestic Rating System in Northern Ireland - A fairer share" Policy Paper Department of Finance and Personnel, Northern Ireland.
Giles, C, Ridge, M (1993) The Impact on Households of the 1993 Budget and the Council Tax, Fiscal Studies, Vol. 14, No. 3, 1-20.
Gloudemans, RJ (1999) "Mass Appraisal of Real Property" International Association of Assessing Officers, Chicago, IL, .
Harris, R, Lehman, M (2001)(a) "Social and geographic inequities in the residential property tax: a review and case study" Environment and Planning A 2001 Vol. 33 pp 881-900
Harris, R, Lehman, M (2001)(b) "Response: the boundary effect and vertical inequity in the residential property tax" Environnment and Planning A Vol. 34 pp. 367 - 368
IAAO (1978) "Improving real Property Assessment: A Reference Manual", International Association of Assessing Officers, Chicago, IL, United States.
IAAO (2010) "Standard on Ratio Studies" International Association of Assessing Officers, Kansas City, Missouri, United States.
Institute of Revenues, Rating and Valuation (1997) "Principles for Local Government Finance" The Institute of Revenues Rating and Valuation, London.
Institute of Revenues, Rating and Valuation (1999) "Council Tax Collection Arrangements in Scotland and England Wales" Central Research Unit, Scottish Executive, Edinburgh.
Jones, C., Leishman, C, Orr, A. M. (2006) (a) “The revaluation of council tax bands – more than rearranging the deck chairs”, Policy & Politics, 43, pp. 219–39.
Jones, C, Leishman, C, Orr, M, (2006) (b) “The potential impact of reforms to the essential parameters of the Council Tax” Fiscal Studies 27 205-229
Kelly, R, (1998) "Intergovernmental Revenue Allocation Theory and Practice: Application to Nepal" Development Discussion Paper No. 624 Harvard Institute for International Development
Kelly, R (2000) (a) “Property Taxation in East Africa: The Tale of Three Reforms Lincoln Institute of land Policy Working Paper WP00RK2
Kelly, R, (2000) (b) “Designing a Property Tax Reform Strategy for Sub-Saharan Africa: An Analytical Framework Applied to Kenya” Public Budgeting & Finance 20 (4), 36–51.
Kenway, P, Palmer, G. (1999) "Council Tax: The Case For Reform" New Policy Institute, London.
Keogh, GH, D'Arcy E (1994) "Market Maturity and Property Market Behaviour: A European Comparison of mature and Emergent Markets" Journal of Property Research 11:3 pp.215-235
Kochin, LA, Parks, RW (1982) "Vertical Equity in Real estate Assessment: A Fair Appraisal" Economic Enquiry 20 (October 1982) pp. 511-31
Lim, LC, McCluskey, WJ, Davis, PT (2008) "Area-Based Banding for Property Tax Assessment in Transitional Countries: An Empirical Investigation" Journal of Real Literature, Vol. 16 (2) pp. 201-215
Lyons Inquiry into Local Government (2007) "Place Shaping: a shared ambition for the future of local government" The Stationary Office, London 03/07 361408
McCluskey, WJ, Davis, PT, Lim, LC (2007) (a) "Residential Property Tax Reform in Northern Ireland: Impact Analysis and Spatial Redistribution" Journal of Property Tax Assessment & Administration Volume 4, Issue 3
McCluskey, WJ, Franzsen, R, (2005)(a) "An evaluation of the property tax in Tanzania: An untapped fiscal resource or administrative headache?", Property Management, 23 (1)
McCluskey, WJ, Franzsen, R, (2005)(b) “Land Value Taxation: An Applied Analysis” Ashgate Aldershot Hants
McCluskey, WJ, Lim, LC, Davis, PT (2007) (b) “The Geographical Incidence of Domestic Rate Reform in Northern Ireland” Environment and Planning C: Government and Policy 2007, volume 25, pages 131 – 149
McCluskey, WJ, Plimmer, F, Connellan, O (2002) Property Tax Banding: a solution for developing countries The Assessment Journal IAAO March/April Vol. 9 No. 2 pp. 37 – 47
McGuire TJ (1999) “Proposition 13 and its offspring: For good or evil" National Tax Journal 52 pp 129-138
Mehta S, Gierz F (1996) “Measuring the performance of the property tax assessment process” National Tax Journal 49, 1; pg 73
Mikesell, J.L, (2007) "Developing Options for the Administration of Local Taxes: An International Review", Public Budgeting & Finance, 27 (1)
Oates, W.E. (2000) "Local Property taxation: An Assessment" Lincoln Institute of Land Policy, Cambridge, MA, United States.
Paglin, M, Fogarty, M (1972) "Equity and the Property Tax: A new Conceptual Performance Focus" National Tax Journal 25(4) December 1972 pp. 557-565
Plimmer, F, McCluskey,WJ, Connellan, O,( 2002) "Valuation banding ? An international property tax solution?", Journal of Property Investment & Finance, 20(1) 86-83
Plimmer, F, McCluskey, WJ, Connellan, O. (1999), "Reform Of UK Local Government Domestic Property Taxes" Property Management, Vol. 17, No. 4, 336-352.
Powers, S. (2008) "Collection and Enforcement of the Property tax" in Bahl R, Martinez-Vasquez J, Youngman, J (Eds) (2008) "Making the property Tax Work - Experiences in Developing and Transitional Countries" Lincoln Institute of Land Policy
Rodríguez-Pose A, Gill N, (2003) "The global trend towards devolution and its implications" Environment and Planning C: Government and Policy 21(3) 333 – 351
Sirmans, GS Duskin, BA, Friday, HS (1995) "Vertical Inequity in the Taxation of Real Property" National Tax Journal 49 pp. 71-84
Sirmans, GS, Gatzlaff, D, McPherson, D (2008) "Horizontal and Vertical Inequity in Real Property Taxation" Journal of Real Literature, Vol. 16 (2) pp. 167 -180
Smith BC (2000) Applying models for vertical inequity in the property tax to a non-market value state. The Journal of Real Estate Research 19, no. 3 (May 1): 321-344.
Sunderman, MA, Birch, JW, Cannaday, RA, Hamilton, TW (1990) "Testing for Vertical Inequity in property Tax Systems" The Journal of Real Estate Research 5 No.3 pp. 319-34
Tiebout C, (1956) "A pure theory of local expenditures" Journal of Political Economy 54 416 – 424
Trasberg, V (2004) "Property and land taxation in the Baltic States", Journal of Property Tax Assessment and Administration, Vol. 1 No.2, pp.31-43.
Welsh Assembly Government (2002) "Council Tax Revaluation and Rebanding 2005", Cardiff.
Youngman, J (2008) “The Property Tax in Development and in Transition” in Bahl R, Martinez-Vasquez J, Youngman, J (Eds) (2008) "Making the property Tax Work - Experiences in Developing and Transitional Countries" Lincoln Institute of Land Policy
Youngman, JM (2007) "The variety of Property Tax limits: Goals, Consequences and Alternatives" State Tax Notes November pp.541-557
- Property Tax
- Area based systems
- Simplified appraisal approaches
- developing and transitional economies
- local taxation