Association for Public Policy Analysis & Management

Local governments raise billions in revenue to provide goods such as education and roads to their communities. Property taxes typically make up a large share of local government budgets. Standard decentralization theory predicts that households will “vote with their feet” and choose to live in areas that tax and spend according to their preferences. Standard theory assumes that local governments have comparable the technical capacity and political pressure as higher levels of government, which may be less true in poor areas. Moreover, standard theory focuses on efficiency when policymakers’ goal may be to reduce inequality. We examine these issues in the state of Kentucky using a state-lead program that split counties into three treatment groups to address chronic property underassessment for locally elected property assessors. County assessors received varying degrees of technical assistance and risk of removal from office from the state. The program was part of a wider effort to reduce inequality in education funding within the state. We use difference-in-differences and county-level administrative data on assessments to find that the program boosted assessments by around 30 percent in the initial year after treatment, but these effects fade over time. We also find suggestive evidence that increasing assessments did not lead to increased total local revenues, as counties were free to offset gains in assessments with lower property tax rates relative to control counties.