Real Estate Taxes and Home Value: Evidence from TCJA

Review of Economic Dynamics, 2022, vol. 43, 125-151

Abstract: We examine the impact of changes in the federal tax treatment of owner-occupied housing stemming from the implementation of the Tax Cuts and Jobs Act (TCJA) in January 2018 on local housing markets. Using county-level house price information and IRS tax data, we find that, holding everything else the same, capping the federal tax deduction of state and local taxes at $10,000 has caused the growth rate of home value to decline by an annualized 0.9 percentage point, or 18 percent, in areas where real estate taxes as shares of taxable income exceeded the national median. The results are robust when controlling for other changes in the tax reform. The areas with a high real estate tax burden also suffered from reductions in market liquidity after the reform. Fewer houses were transacted either in absolute numbers or as shares of total listings and houses stayed on the market longer before being sold. Importantly, we find that the housing market slowdown was accompanied by declines in local construction employment growth as well as multi-family building permits. Furthermore, on net more people moved out of these areas after the reform. Finally, we show that the act has already had political consequences. In the 2018 midterm Senate elections, more voters voted for Democratic candidates in areas with high real estate tax burden than they did for Republican candidates. (Copyright: Elsevier)

Keywords: Real estate tax; Home value; Housing liquidity (search for similar items in EconPapers)
JEL-codes: G1 R0 R2 (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
https://dx.doi.org/10.1016/j.red.2021.02.003
Access to full texts is restricted to ScienceDirect subscribers and institutional members. See https://www.sciencedirect.com/ for details.

Related works:
Software Item: Code and data files for "Real Estate Taxes and Home Value: Evidence from TCJA" (2021)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:red:issued:20-215

Ordering information: This journal article can be ordered from
https://www.economic ... ription-information/

DOI: 10.1016/j.red.2021.02.003

Access Statistics for this article

Review of Economic Dynamics is currently edited by Loukas Karabarbounis

More articles in Review of Economic Dynamics from Elsevier for the Society for Economic Dynamics Contact information at EDIRC.
Bibliographic data for series maintained by Christian Zimmermann ().