Title: "Essays on Property Tax Limitation Mechanisms"
Abstract: Over the last half-century, the United States has experienced a tax revolution at the local level of government. Driven by preferences of many residents to limit the size and growth of local government, the tax revolts have spread rapidly since the installment of Proposition 13 in the state of California in the late 1970s. Today, tax and expenditure limitations (TELs), such as property tax limits, have been implemented in the vast majority of states for a variety of reasons. This expansion in the use of TELs has raised three main questions among economists. First, why are TELs implemented to begin with? Second, do TELs achieve the objectives that they have been set out to accomplish? Lastly, are there any consequences or adverse effects of the implementation of TELs? In this study, I shed light on each of these three questions with a primary focus on the use of county-level property tax assessment caps in the state of Maryland. The “Homestead Property Tax Credit” was reformed in Maryland in 1992 to allow each county-level government the right to set an assessment cap associated with owner-occupied property tax bills at any magnitude between zero and ten percent. This unique structure of the property tax allows for the empirical examination of the choice of magnitude of assessment caps in Essay 1 to further understand those characteristics associated with preferences for varying levels of residential property tax relief. Results suggest that substitutability among revenue sources and shocks to the housing market play a key role in the preferences for such tax relief. In Essay 2, I examine an important consequence associated with targeted tax relief by empirically investigating shifts in the relative burden of the property tax. Results indicate that jurisdictions associated with preferences for higher levels of residential property tax relief may increase the level and share of non-residential property tax levies, shifting the relative burden of the property tax from homeowners to businesses. The results in each of these two essays provide policymakers with important information regarding the effects of installing property tax limits at various magnitudes.