Who Benefits from Targeted Property Tax Relief? Evidence from Virginia Elections

Abstract

This study examines the market impact of targeted property tax relief, which is critical for understanding who exactly benefits from a widely used local policy. Specifically, we investigate this in the context of two statewide ballot measures in Virginia that provided property tax relief or heightened expectations for future relief intended to aid disabled veterans and seniors, respectively. Using residential multiple listing service microdata from Virginia, results from a regression discontinuity analysis show that once the 2010 tax relief measures passed on Election Day, property values rose sharply in response to the sudden increase in demand for homeownership among the targeted groups. We find that senior preferred housing and properties within areas with higher proportions of seniors and veterans experienced the highest price appreciation, while areas with fewer veterans or seniors saw little impact. The findings suggest that this type of policy provides an immediate benefit to current homeowners, thereby offsetting benefits for subsequent homeowners within the targeted groups. This effect represents an unintended consequence of targeted property tax relief as a policy tool more generally, as immediate capitalization into home prices subsequently increases the cost of housing for many individuals the relief was intended to help.

Age-based property tax exemptions

“…In addition to the specific policy question of age-based tax exemptions, our results provide additional general evidence that households sort or vote based on tax burdens, conditional on amenities (Oates 1969, Palmon and Smith 1998, Banzhaf and Oates 2013, MacKay 2014, Stadelmann and Eichenberger 2014. Moulton, Waller, and Wentland (2018) have specifically found that age-based tax exemptions in Virginia increase property values, indicating an overall demand shock, but do not consider demographic sorting patterns or housing consumption explicitly.…”

“…Note, however, that we cannot rule out the possibility that there is a causal effect on the overall price function, such as those found byMoulton, Waller, and Wentland (2018). Such effects would be differenced out in the comparison between older and younger households.…”

Toxic Assets: How the Housing Market Responds to Environmental Information Shocks

“…As an alternate estimation approach, we follow a regression discontinuity design similar to Moulton, Waller, and Wentland (2018), which is broadly consistent with the event study literature in finance and applied microeconomics. This approach combines a hedonic sale price model and a standard dual linear spline RD model, using the date of sale as the running variable.…”

Indirect effects and causal inference: reconsidering regression discontinuity

“…While their work acknowledges the presence of cross-sectional dependence, and utilizes a spatial hedonic model in the form of Prucha (1998, 1999) to support their main conclusions, they do not incorporate the dependence into the RD framework itself and admit "…accounting for such cross-sectional interactions in a quasi-experimental framework is challenging and an interesting topic for future research (p. 121)". A similar example comes in the form of Moulton et al (2016) which examines the benefits of targeted property tax relief measures in Virginia, using an RD framework, and finds that increased demand stemming from the measure lead to a 5% increase in home values. Again, acknowledging the possibility of these cross-sectional interactions, they employ a spatial fixed effects specification as a robustness check.…”