POLITICAL FORCES AS A SUBSTITUTE FOR THE LAND MARKET

Land Economics/Use, Political Economy,

A CRITIQUE OF FEDERAL AGRICULTURAL PROGRAMS

Political Economy,

REAL PROPERTY TAXES AND FARM REAL ESTATE VALUES IN NORTH CAROLINA

Use value taxation for farm real estate and proposals to reduce the use of property taxes in financing local schools have received widespread attention throughout the United States in recent years. This report presents the results of a study designed to provide information necessary to determine how these (or other) proposals to reduce property taxes are likely to affect owners of farm real estate. A brief description is first presented of property taxes as they are administered in North Carolina. A model is then formulated to determine the extent to which changes in property taxes are capitalized into farm real estate values. The average value per acre of farm real estate on a county basis in North Carolina is regressed on the tax rate and four other categories of explanatory variables relating to agricultural productivity of land, farm size, urban influence, and recreational demand. The estimated relationship explained about three-fourths of the variation in farm real estate values. Al 1 explanatory variables had the hypothesized sign. The results indicate that property tax differentials are largely capitalized into real estate values. There are two important implications. First, a capital gain will accrue to the owner of real estate whose value is enhanced as a result of a reduction in the rate of taxation on real property. Second, the decrease in property taxes wi 11 be less than the decrease in the tax rate. The estimated relationship was used to analyze (1) the effects of a decrease in property taxes for farmers versus other property owners, (2) the effect of substituting state taxes for local property taxes, and (3) the potential effect of 1973 legislation providing for present use value taxation for farm real estate in North Carolina

AGRICULTURAL POLICY: It Is Not Necessarily The Best of All Possible Worlds

The conventional view that economists play an important role in the public policy process is contrasted with "Chicago political economy." This strand of the Chicago School of Economics argues that government programs that survive in the political process are superior to available alternatives. In contrast, it is shown here that a farm program may persist not because it is broadly beneficial but rather because information and incentive problems in the political process lead to perverse results. The conclusion is that agricultural economists can make an important contribution to public policy

REDUCING PROPERTY TAXES IN NORTH CAROLINA: AN ECONOMIC ANALYSIS

This report sulTITlarizes the effect of three recent studies in North Carolina concerning the relationship between changes in real property taxes and property values. The studies analyzed the relationship between changes in the level of property taxes and property values for owner-occupied housing, rental housing, and fann real estate. These studies indicate that much of any tax reduction on rental housing property in North Carolina will be passed on to tenants in the fonn of reduced rents but will have little effect on the value of owner-occupied homes. In the case of farm real estate, a reduction in property taxes is largely capitalized into higher property values. The conclusion in each case assumes an adjustment period sufficiently long such that full adjustments have been made to the change in the tax rate. The results of these studies suggest the difficulties in predicting the effects of general reductions in property taxes. Such reductions are likely to have a quite different impact on owners of different classes of property. Given the level of local government budgets, property tax reductions mean an increase in other taxes. Hence, reductions in property taxes are likely to be tied to proposals to replace taxes lost by increases in sales taxes, income taxes, etc. The method of replacing lost revenue will also affect various groups of taxpayers quite differently. For these reasons, simple generalizations about the effects of reductions in local property taxes on particular classes of real property cannot be made