An empirical analysis of simplified valuation approaches for residential property tax purposes

Abstract

Purpose

This paper seeks to examine the potential for simplified market value and non market value based banded approaches to be utilised for residential property tax purposes. The broad aim is to ascertain whether relatively low complexity approaches to establishing a property tax base can perform adequately in comparison to established best practice – in essence whether there is evidence of equifinality (equivalent performance from approaches of substantially different complexity) between simpler and more complex approaches.

Design/methodology/approach

The research comprises empirical analysis of a database of property sales and property attribute data drawn from a UK District Council area. Several simplified methods are used to create different tax base scenarios and the outflowing tax incidence is compared with that of using a complex, industry standard market value approach. The methods of comparison are regression and spline regression based models testing for tax inequity, drawn from the literature. The approach here differs from previous work in that it occurs at the actual tax bill level allowing the comparison of value, non‐value and banded approaches.

Findings

The findings of the research indicate that simplified approaches to establishing a property tax base can perform in a broadly similar fashion to more complex systems currently practiced in developed economies and therefore evidence of equifinality exists.

Practical implications

The research provides useful tools to property tax policy makers and practitioners in developing and transitional economies in furthering their aspirations of embedding robust property taxes for the furtherance of socio‐economic and political development and the general wellbeing of society and they are of value to property tax policy makers and to academics in the field.

Originality/value

The paper provides evidence of the efficacy of simplified and banded approaches as an option for jurisdictions in developing and transitional economic circumstances or elsewhere in circumstances which mitigate against full scale appraisal of the property tax base to discrete market values. The approaches and techniques pioneered open up opportunities to carry out a range of new comparative analysis of tax base options.

Citation

Davis, P., McCluskey, W., Grissom, T.V. and McCord, M. (2012), "An empirical analysis of simplified valuation approaches for residential property tax purposes", Property Management, Vol. 30 No. 3, pp. 232-254. https://doi.org/10.1108/02637471211233774