Targeted tax relief and house prices: New evidence of capitalization

Abstract

Florida's property tax system caps annual assessed value growth and allows homeowners to transfer accumulated tax benefits between homesteads. These features create cross‐sectional variation in buyers' tax liabilities, allowing us to test whether house prices capitalize property tax relief while holding local amenities, public goods, and neighborhood characteristics constant. Using three complementary measures of property tax relief, we find consistent evidence that expected tax savings from the accumulation and transferability of these benefits are capitalized into transaction prices. These results suggest that policies aimed at reducing ongoing ownership costs may unintentionally worsen housing affordability by inflating house prices.