Policy Research

The Housing Crisis and State and Local Government Tax Revenue: Five Channels

Byron Lutz, Raven Molloy, Hui Shan

Summary

The article examines losses in state revenues during the recession of 2009 and attempts to assign the proportion of revenue loss that can be attributed, on average, to the downturn in the housing market. The study ultimately finds that on average, despite large devaluation of property, most states stay relatively consistent in revenue acquired from property taxes due to a lag factor in assessment and offsetting measures in tax rate. The study also finds that losses in sales and income tax attributed to the housing market have modest effects on state revenue loss, indicating that the majority of revenue loss during the recession was likely caused by general economic downturn.

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Policy Implications

This article can be used in reacting and forecasting during times of economic stress. It seems the case that when housing markets decline, revenues from the market are able to hold up to some form. It is also useful in designing potential policy to offset effects of declining housing markets.