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Property Tax Salience and Payment Delinquency

August 2013

Sebastien Bradley


The article looks at property tax data in Ann Arbor, MI to try and determine reasons for property tax delinquency. The study finds that a leading cause of missing or being late on property tax payments is unanticipated increases in taxes. A prominent source of unanticipated tax increases for homeowners is the taxable value of a house uncapping after a change in ownership. The study mentions that, as dictated by proposal A, tax values do not reassess/uncap until January 1st so many new homeowners budget according to a tax bill that they assume will be consistent. Additionally, the article mentions that many realtors list previous taxes for property and new home buyers incorrectly assume past values will be indicative of their tax bill, thus overpaying for their house. Finally, the article posits that this unexpected uncapped tax has a significant effect on missing tax payments, and thus causes market distortions. Further, the article finds significant evidence that missing property tax payments increases chances of mortgage default.

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Policy Implications

This article can be used in attempting to modify or create an efficient property tax system. The article suggests that the delay in reassessed property values and taxes causes significant market distortions that have negative economic effects. Providing more information about upcoming tax changes or creating more immediate adjustments could be employed to improve tax compliance. Further, possible legislation to require realtors to alert buyers to tax changes could help correct market imperfections.

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