Doctoral Dissertations

Date of Award

12-1972

Degree Type

Dissertation

Degree Name

Doctor of Philosophy

Major

Agricultural Economics

Major Professor

Joe A. Martin

Committee Members

Irving Dubov, Larry L. Bauer, Hans Jensen

Abstract

The objective of the study was to evaluate the potential of general property taxes in financing county governments in Tennessee. Specific objectives were to (1) analyze differential rates of change in property tax bases and revenues among the counties and (2) determine the implications for county fiscal structures and taxpayer burdens inherent in property tax base, property tax revenue, and income trends. The first phase of the analysis involved (1) objective classification of county groups with similar socioeconomic change patterns, (2) statistical evaluation of the groupings, and (3) regression analyses of change relationships among the counties, county groups, and for the state. Variables used in the analysis were expressed as changes to secure insight of the dynamic characteristics and relationships. Four groups of counties were identified using principal components analysis. The groups were labeled (1) rapid-balanced-change, (2) moderate-balanced- change, (3) low-change, and (4) unbalanced-change counties. A multiple-discriminant analysis indicated significant differences between all groups except 2 and 3 at the 5 percent level. Group 1 and 2 counties included both urban and near-urban counties as well as some well-developed rural counties. Counties included in Group 3 and 4 tended to be more rural and less developed. Only six of the 32 counties in Group 4 had increases in total population from 1960 to 1970. Income elasticities of two property tax components, tax base and tax revenue, were estimated for individual counties, all counties, and county groups. Individual county elasticities were highly variable ranging from almost zero to 2.4 for both tax components. The tax base elasticity for all counties was 1.1 while the revenue elasticity was 1.0. Thus property tax base response to income increases was slightly elastic for the state but the revenue response was proportional to income change. The response for both components tended to be inelastic for Group 2 counties with coefficients of .95 and .87 for the tax base and revenue components, respectively. Revenue elasticities were less elastic than tax base elasticities for all groups except Group 4 counties for which both coefficients rounded to 1.1. The revenue elasticity for County Group 1 was also 1.1. Thus, the most urban and the most rural of Tennessee counties had slightly elastic property tax responses to increases in total personal income. Multivariate regression models which included wealth, population, and land use change variables as well as income change were examined for Tennessee and the four county groups. Income and population change variables were statistically significant for both the tax base and revenue regression models, however, the remaining variables were not statistically significant and/or improperly signed. The multiple regression models were not significantly better in explaining either tax base or revenue change variations than the elasticity models. Income alone explained about 83 percent of the change in tax base and about 76 percent of the change in property tax revenue. The multiple regression models increased explanatory powers by only 2 and 3 percent for the tax base and revenue models. Comparisons of performance and potentials for 1967 were developed to provide a frame of reference in the second phase of the study. The comparisons indicated that about an 8 percent increase in property tax levies could have been realized if the average effort for the state of Tennessee in 1967 had been the minimum effort for all counties. Approximately 65 percent of these additional levies were accounted for by counties of Group 2 and 20 percent by counties of Group 1. There were four of the 15 counties in Group 1 and 10 of the 28 counties in Group 2 which accounted for most of the underutilization of property taxes. These counties accounted for 73 percent or $10.3 million of the potential additional levies in 1967. Counties; in Groups 3 and A had relatively small potentials for added levies in terms of the group and state totals. However, several counties in these groups would have been able to significantly increase local revenues with the added potentials available under the assumed conditions. Analyses of 1976 potentials were conducted using two assumptions regarding the levels of property tax collection effort in conjunction with trend line projections of county population and total personal income growth. The greatest changes in per capita and total levies were found to occur among the counties of Group 2. Low level effort projections indicated that levies among most counties would approximately double from 1967 to 1976. Many of the counties in Group 2 would about triple levies to exert the same effort by 1976. At the high level of tax effort the levies for most counties would quadruple but the levies for many of the counties in Group 2 would increase five- and six-fold from 1967 to 1976. Total property tax levies for all counties at the high level of effort would increase from $165 million in 1967 to $455 million in 1976 under the assumed conditions. The magnitude of these absolute estimates of property tax increases were especially high for Group 2 counties. In relative terms, however, the burdens projected for Group 2 counties were tempered by the projected increases in total and per capita income levels. The relative index values for County Groups 1 and 4 in 1967 were higher than those of Groups 2 and 3 indicating superior tax effort. Projections for 1976 under the assumed conditions resulted in projected relative burdens for Groups 3 and 4 which were higher than those for Groups 1 and 2. The analyses implied that relative property tax burdens were more onerous for County Groups 1 and 4 in 1967 despite the fact that per capita property tax levies in many Group 4 counties were less than half the levies imposed in the Group 1 counties. The projections for 1976 indicated that the relative burdens for counties of Groups 3 and 4 would be higher than those of County Groups 1 and 2 because of the lower per capita income available for tax payment.

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