Who Really Pays: the Short-term Incidence of the Property Tax in Philadelphia

• In Event: Property Taxation and Its Socioeconomic Ripple Effects

Abstract

Tax incidence for property tax refers to who ultimately bears the burden of the property tax. This paper revisits the incidence of property tax by studying a historically large tax increase of over 30% from 2022 to 2023 induced by a comprehensive reassessment after a prolonged interval in Philadelphia. Theoretical analysis suggests renters would bear only a marginal share of the tax in the short run, but tax could be passed on to renters in submarkets with more elastic housing supply or where landlords acquire substantial market power. Using several unique property-level rent datasets and a difference-indifference framework for identification, our empirical analysis suggests there has been no sign of tax-induced rent increase at the market level, for large-scale, professionally managed apartments, or for MLS-listed rental properties about two years after the policy shock. Results thus suggest landlords have to bear the burden of increased property taxes, at least in the short term. This paper enriches the tax incidence literature by focusing on the short-term impact of property taxes and shed light on the heterogeneity of the behavior of different landlords, shedding light on optimal design of the property tax.

Authors

• Lei Ding, FRB Philadelphia

• Yilin Hou, Syracuse University