RESIDENTIAL PROPERTY-TAX CAPITALIZATION - DISCOUNT RATE EVIDENCE FROM CALIFORNIA

In spite of the voluminous literature on property tax capitalization, this paper is the first to derive a discount rate empirically. The paper uses an unique data set from a Mello-Roos Community Facility District (CFD), where taxes are expected to be totally capitalized into property values. Using a standard hedonic pricing model, the results show that buyers of homes within the CFD capitalize taxes into the prices of purchased properties at a discount rate of around four percent.