Recessionary Property Taxes

Property taxes are often credited for stabilizing local government revenues during contractions, but this revenue stabilization can have destabilizing effects on households. In this paper I explore how features designed to stabilize property tax revenues in Maryland affected households during the Great Recession. I find that property tax cuts attributable to a downward property reassessment reduced the probability a household would default on its mortgage, and increased home sales and purchase price premia. Conversely, properties that were not reassessed, because of the staggered reassessment process that phases in the effects of housing market fluctuations on revenues, had increased rates of mortgage default and lower turnover. I also report suggestive evidence that the counties that cut property taxes earlier in the recession suffered smaller spikes in unemployment and recovered more quickly.