An Unfettered Property Tax in Illinois

We evaluate property tax systems using the economic criteria of equity, efficiency and simplicity. We apply these criteria in an evaluation of both a stylized constrained property tax system in which tax rates, tax revenues or assessments are limited and an unfettered property tax system. We frame our exploration within standard models of local government behavior.

The effects of property tax constraints on equity, efficiency, and simplicity depend on the nature of local government behavior. If local government behavior more closely resembles a benevolent dictator, the imposition of revenue and rate limitations reduces efficiency. A market value assessment system will tend to perform best in terms of equity, but it is not likely to be nearly as transparent as a fixed value or acquisition value system. However, transparency is relatively unimportant if the government acts as a benevolent dictator.

Under Leviathan governments, limiting local government access to revenues and tax rates is likely to increase efficiency. In addition, assessment systems that lower the cost of monitoring government are more attractive if government behaves according to the Leviathan model. Fixed and acquisition value assessment systems allow for local government revenues and expenditures to be monitored at lower cost to voters than under market value assessment. On equity grounds, market value assessment is likely to be superior whether government behaves as a budget-maximizing bureaucrat (Leviathan) or as a benevolent dictator.