The millage rate offset and property tax revenue stability

• Estimates of millage rate elasticity with respect to property tax base.
• Larger elasticity for governments with greater monopoly power.
• Results consistent with strategic view of property tax rate.
• Changes in millage rates are a weak revenue stabilizer.

One of the alleged virtues of the property tax is that it produces stable revenues regardless of price movements in real estate markets. One explanation for this is that local governments adjust their millage rates to offset changes in their property tax base. Little evidence, however, exists on the strength of this millage rate offset mechanism. We hypothesize that the importance of this mechanism will vary among local governments depending upon the monopoly power that they possess. The results provide strong support for our hypothesis.