摘要：There is a vast and rich literature on the property tax and the associ-ated issue o f property tax capitalization.1To the best of our knowledge, there are no published studies outlining the impact of a rather straight-forward policy question: What occurs to housing affordability in a small open region, such as a state, if there is a subs titution out of a residential property tax into some other tax, or if surplus funds can be used to per-manently reduce the property tax. That such a tax substitution -reduction will increase housing affordability is a claim often made by proponents of property tax cuts. But are such claims warranted. For a property tax reduction to lead to "more affordable housing," property tax reductions must NOT be fully capitalized into the value of existing property. A simple numerical example makes the point. Con-sider a residential property with a particular set of characteristics, in a jurisdiction providing a particular set of local public goods, that has a permanent $3,000 annual tax liability associated with its ownership. Given existing conditions, assume the house has a market value of $100,000. Suppose now that this permanent annual tax liability is re-duced to $2,000, while all other attributes of the property, including pub-lic spending remain the same. The residence now costs $1,000 a year less to maintain than before the tax change. Assuming a 10 percent discount rate and an infinite time horizon, the present discounted value of the decline in the cost of owning the property is $10,000. If this property tax cut is capitalized, then the market price of the residence rises to $110,000. Any new buyer of the property is no better or worse off by the tax r e-gime change: The property tax cut did nothing to make housing more affordable.
