The Cost of Delinquent Property Tax Collection Three Essays in Local Public Finance

Property tax delinquency can be costly for local governments and taxpayers. There are four important state government policies that affect the cost of property tax delinquency for taxpayers; penalties, interest fees, tax lien sales, and time to tax foreclosure. Penalties are a one-time fee applied to a tax bill when not paid on time. Interest fees are recurring, applied to a tax bill the duration of delinquency. Tax lien sales introduce additional penalties, uncertain interest fees, and private tax foreclosure. Private tax foreclosure is more costly and faster than public tax foreclosure. The first section of the dissertation documents state differences in penalties, interest fees, tax lien sales, and time to tax foreclosure. Higher penalties and interest increase the costs of property tax delinquency for delinquent taxpayers. The second section estimates the responsiveness of taxpayers to differences in penalties and interest fees. The third section estimates to what extent property tax delinquency is affected by tax lien sale induced changes in interest rates charged to delinquent taxpayers. The final section estimates the responsiveness of interest rates to differences in tax lien sale auction design. The dissertation contributes to the literature because it is the first to describe cross-state variation in four important delinquent tax collection policies; penalties, interest fees, tax lien sales, and tax foreclosure. The dissertation is the first to estimate the responsiveness of taxpayers to differences in penalties, interest, and tax lien sales. The dissertation is the first to estimate the responsiveness of interest rate differences in tax lien sale auction design. Property tax delinquency, the untimely payment of property taxes, is administratively and financially costly for local governments. Local governments cut services or raise taxes when property tax delinquency is high. Delinquent property tax bills require notification and monitoring. Penalties, interest fees, and tax lien sale policies set many decades in the past do not adequately cover costs for local governments. Estimating the responsiveness of taxpayers to penalties, interest fees, and tax lien sales is an important first step in designing policies which adequately cover property tax delinquency costs for local governments.