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Measures of Vertical Inequality in Assessments

Daniel P. McMillen and Ruchi Singh

August 2022, English

Standard measures of vertical inequity suggest that assessments are regressive in the sense that high-priced properties are often assessed at lower rates than low-priced properties. Conventional measures of measuring vertical inequality include a simple descriptive statistic—the price-related differential—and measures based on regressions. We show that regression-based procedures are seriously flawed, with a bias that tends to imply regressivity even when it is not present. To supplement the price-related differential, we propose three approaches that focus on the entire distribution of assessments rather than attempting to provide a single measure to characterize the entire assessment process. The first is to compare Gini coefficients for sales prices and assessments. These statistics directly measure vertical inequality by determining whether the distribution of assessments is not as skewed toward low-value properties as are sales prices. Second, we show that the Suits Index, which has been used to analyze tax progressivity, can be used to analyze whether assessments are progressive or regressive. The third approach is to test formally whether the distribution of log sales prices is statistically different overall from the distribution of log assessed values. We compute all of the measures using data on sales prices and assessments for 48 large central city counties.


Assessment, Property Taxation