Research
Working Papers
Awards: C. Lowell Harriss Dissertation FellowshipPresented: National Tax Association Annual Conference, Berkeley Psychology & Economics Seminar, Berkeley Psychology & Economics Lunch, Berkeley Public Finance Lunch, Lynne & Andrew Redleaf Foundation Graduate Student Conference, Early-Career Behavioral Economics Conference
ABSTRACT: This paper establishes that loss aversion fundamentally influences the tax avoidance behavior of property taxpayers. Upon receiving notice of a new assessed value, homeowners have the option to appeal, which, if successful, could lower their tax base. I conjecture that a lagged, salient value---a property's assessed value in the previous year---serves as a natural and prominent reference point to property owners. Guided by a reference-dependent model of assessment protests, I demonstrate various predictions using a sample of 8.2 million administrative property assessment records associated with 1.6 million appeals. Foremost, loss aversion introduces an extensive margin effect around the reference point that induces property owners to disproportionately appeal assessments that have increased relative to the prior tax year. In aggregate, this leads to a sharp kink in the probability of protesting as a function of percent change in assessed value exactly at zero percent change. Additionally, homeowners not only achieve but also seek out value adjustments that result in a final assessed value precisely at the property's previous assessed value. Evidence is strongest for owner-protesters, for whom the reference point is presumably most relevant. Finally, I employ a simple counterfactual estimation strategy. It suggests that loss aversion has a sizable impact on annual household property taxes, most notably for properties constituting the top quartile of value, while also highlighting the importance of one's position in the loss domain in understanding average effect sizes.