Summary
The results from this study extend the academic literature on vertical inequities in real property taxation by analyzing within jurisdictional variations in the property tax burden on residents of Chicago, Illinois. A two-stage model with an instrumental variable identifies tax burden variations between neighborhoods in a single metropolitan tax jurisdiction. A second model incorporates neighborhood and property characteristics in an examination of variations in the ratio of property tax to market value. The findings are vitally important to policymakers interested in funding urban redevelopment programs targeting wealth building through real estate ownership in low-income neighborhoods. The evidence is equally important to analysts concerned with market segmentation and the implications of property tax variations on real estate markets.
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Intrajurisdictional Segmentation of Property Tax Burdens: Neighborhood Inequities Across an Urban Sphere
It has been said that the property tax is regressive, that it is the worst tax, that it is full of externalities, and it is poorly administered, resulting in vertical and horizontal inequities (Fisher, 1996). Though the property tax has been maligned throughout much of its history (see Lutz, 1918), it has been, and remains, the major source of tax revenue for local governments in the United States. Seventythree percent of local government revenue, nationally, is comprised of the property tax, even though it continues to meet with persistent opposition. Debate on the future of the property tax as a public revenue-generating source for local governments and public schools has resulted in formal regulatory amendments (namely limitations through restructuring) to the property tax system in numerous states including Michigan, Florida, Oregon, Massachusetts, California, and Indiana, and is under consideration in Illinois. The Illinois system is particularly vulnerable due largely to the rapid expansion of tax increment financing that is limiting the fiscal control of local jurisdictions to provide public services (Smith, 2006). For local governments nationwide, the property tax has long been the core of fiscal policy (Sokolow, 2000), and implementing limitations threatens the ability of officials to control the benefit nature of the property tax as a revenue source for providing services (Guilfoyle, 2000).
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