Property taxes on agricultural assets

Abstract

This thesis examines effective property tax rates on agricultural assets in the U.S., and attempts to use two models to explain why differences exist among states. One is the "majority rule voting model", and the other is the "special interest model." The former hypothesizes that political influence will increase with increases in the number of farmers, while the special interest model argues that small size will be more effective in exerting pressures on government because the smaller group is easier to organize and less susceptible to the free rider problem. Also, we analyze how tax differences affect land allocation between agricultural use and nonagricultural use. Some other variables besides group size are also considered to affect tax rates, such as proportion of the property tax base that is agricultural, homogeneity of an interest group and value of assets per farm. Regression analysis is used to determine what effects these factors have on tax rates and on whether a tax penalty must be paid when agricultural land is converted to an alternative use. We find that tax rates are inversely related to the number of farmers and positively related to the number of nonfarmers. The proportion of the tax base that is agricultural appears to have little influence on tax rates, given the numbers of farmers and nonfarmers. There is only weak evidence that tax rates are inversely related to the value of assets per farm. Tax rates are positively related to the homogeneity of the agricultural sector, as measured by the a Herfindahl index of the value of output from 12 sectors. Thus the results are broadly supportive of majority rule voting models, and broadly inconsistent with special interest models.