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Mad as Hell: Property Taxes and Financial Distress
Last registered on April 29, 2020


Trial Information
General Information
Mad as Hell: Property Taxes and Financial Distress
Initial registration date
April 28, 2020
Last updated
April 29, 2020 11:36 AM EDT
Primary Investigator
UC Berkeley
Other Primary Investigator(s)
Additional Trial Information
Start date
End date
Secondary IDs
Property taxes are the canonically efficient tax, yet they are especially unpopular and have been curtailed in 46 states. Property taxes may create financial distress when rising home values raise property tax bills but not incomes. In administrative data, I find that even modest tax hikes create distress. Why don't homeowners draw on their housing wealth in response to property tax increases? Even if property tax increases were not accompanied by increases in housing wealth, homeowners should want to avoid delinquency. Standard economic reasoning suggests that financial frictions (e.g. transaction costs, limited credit supply, or information frictions) may prevent homeowners from borrowing against their housing wealth. However, it is difficult to rationalize the large consumption responses exhibited by financially unconstrained homeowners with these frictions alone. An alternative hypothesis is that homeowners may have a preference for avoiding additional indebtedness (i.e. debt aversion). I conduct a novel online survey of 3,000 US homeowners in order to test this hypothesis. 77% of respondents say that they would not consider taking out a second mortgage even if they had difficulty paying property taxes. The majority (67%) would not do so because they feel uncomfortable being in debt. A minority of respondents name transaction costs (33%), credit supply (12%), or a lack of knowledge (4%) as reasons for not taking out a second mortgage. These responses indicate that preference-based debt aversion is the key reason why homeowners do not draw on their housing wealth to pay their property taxes.

Debt aversion also prevents homeowners from taking up a zero-interest loan to pay their property taxes. Property tax deferrals are a common form of tax relief which allow homeowners to postpone paying property taxes (with interest) until they eventually transact their property. These policies are theoretically appealing because they allow homeowners to avoid becoming liquidity constrained without creating substantial economic inefficiencies. In my survey, 42% of respondents say that they would never defer their property taxes, even at zero interest. 61% of those who would never defer say that they would not want to feel like they were in debt, indicating that debt aversion is a key deterrent to the effectiveness of tax deferrals. These results help explain the lack of success of property tax deferral policies in the US. Thirty-one states offer taxpayers some form of property tax deferral; however, even in places where eligibility criteria are broad, take-up of property tax deferrals tends to be very low.

I use the survey of homeowners to explore policies that can make property taxes less unpopular and find that aligning property taxes with homeowner incomes substantially improves attitudes towards property taxes. I conduct a randomized information treatment that informs respondents in Michigan about their state's income-based tax relief program. This policy lowers property taxes for over one million taxpayers. Receiving randomized information about this policy reduces the probability that a respondent identifies the property tax as the worst tax by 7 percentage points (a 24 percent reduction). This finding supports the idea that financial distress among illiquid homeowners generates animus towards property taxes. If this reduction were applied to nationwide attitudes, the property tax would no longer be the most unpopular tax.

The causal links between property taxes, financial distress, and property tax animus help to explain the historical unpopularity of property taxes. I show that enactments of statewide property tax limits are concentrated in periods of rapid local house price growth. These are precisely the circumstances under which illiquid homeowners would have experienced financial distress due to the misalignment of property taxes and income flows. Moreover, survey data indicate that property tax animus is concentrated in counties in which rapid house price growth led to higher property tax burdens, but not in similar counties where local tax policies prevented house price growth from increasing property taxes.
External Link(s)
Registration Citation
Wong, Francis. 2020. "Mad as Hell: Property Taxes and Financial Distress." AEA RCT Registry. April 29. https://doi.org/10.1257/rct.5784-1.0.
Experimental Details
Interventions were comprised of information treatments conducted within the Qualtrics survey platform.

Half of survey respondents not living in Michigan were randomly assigned to receive information on second mortgages and reverse mortgages. The treatment is comprised of a series of six slides. This treatment is designed to test whether information frictions deter homeowners from taking out second mortgages in response to property tax increases.

Homeowners in Michigan were randomized into a control group, an information treatment about assessment limits, or an information treatment about income-based property tax reductions. Policy Treatment 1 provides information about assessment limits in Michigan. Michigan limits the growth of assessed value of property to the lower of 5% and inflation. This assessment limit gives homeowners with longer tenures substantial tax advantages relative to newer homebuyers. Policy Treatment 2 provides information about Michigan's income-based tax relief. Michigan's Homestead Property Tax Credit provides households with income below $60,000 a refundable credit on their state income taxes. The credit phases out with income but typically provides about 60\% of the amount that property taxes exceed 3.5% of income. This credit is taken up by over 1 million taxpayers and provides a $500 reduction on average (Michigan Department of Treasury 2018).
Intervention Start Date
Intervention End Date
Primary Outcomes
Primary Outcomes (end points)
(1) knowledge of policies and methods for home equity extraction and (2) attitudes towards property taxes
Primary Outcomes (explanation)
Knowledge of policy is measured using questions that test factual knowledge about current property tax relief policies. For example, respondents are asked to state the maximum increase in taxable values for properties in Michigan. Knowledge of home equity extraction is measured using questions associated with mortgage lending. For instance, respondents are asked which of a set of potential answers represents a method for borrowing against one's home. There are two measures of attitudes towards property taxes. The first is indicating that the property tax is the worst and least fair tax. The second is voting against a hypothetical increase in property taxes to fund local schools. The relevant questions are as follows:

Which do you think is the worst tax--that is, the least fair? {Federal income tax, Federal Social Security tax, State income tax, State sales tax, Local property tax}
Imagine that in next year's election there were a ballot proposal that would increase property taxes to pay for local public school infrastructure improvements. Your taxes would increase by $200. How would you vote on this proposal? {Vote yes, Vote no}

Which of the following programs reduce property taxes for homeowners in Michigan? Check all that apply. {Limits on the growth of assessed value of property (assessment limit), Property tax reductions based on household income, Property tax deferral programs, Maximum property tax rates}

The assessed value of property is the value used by local governments for tax purposes. The state of Michigan limits how quickly assessed value can increase from year to year. What is the maximum percentage by which the assessed value of property can increase in one year? Please enter your answer as a percent.

Which of the following groups do you think currently benefits the most from this limit on assessed value? {Homeowners who bought their home recently benefit the most, Homeowners who bought their home a long time ago benefit the most, All homeowners benefit equally}

The state of Michigan offers income-based property tax reductions to homeowners through the Homestead Property Tax Credit. What do you think was the average reduction to property taxes for homeowners who received this credit? Please enter your answer in dollars.

Do you think that low-income or high-income homeowners benefit more from the Homestead Property Tax Credit? {Low-income homeowners benefit more, High-income homeowners benefit more, Low-income and high-income homeowners benefit equally}

As a result of Michigan's limit on the growth of assessed values, a homeowner who recently purchased a home will pay much higher property taxes than a homeowner who purchased a similar home several years ago in the same neighborhood. Do you approve or disapprove of this feature of Michigan's property tax system? {Approve, Disapprove}

Because of Michigan's income-based property tax relief, a low-income homeowner will pay lower property taxes than a higher-income homeowner who owns a similar home in the same neighborhood. Do you approve or disapprove of this feature of Michigan's property tax system? {Approve, Disapprove}
Secondary Outcomes
Secondary Outcomes (end points)
Secondary Outcomes (explanation)
Experimental Design
Experimental Design
The experiment is conducted on 3,000 US homeowners completing an online survey. Half of respondents living in Michigan are randomized into receiving a treatment about second mortgages and reverse mortgages. 30% of respondents not living in Michigan are randomized into receiving information on Michigan's assessment limit. Another 30% are randomized into receiving information on income-based tax reductions.
Experimental Design Details
Randomization Method
Randomization is conducted automatically by the survey software. At the beginning of each survey, a respondent is assigned a random number that determines their treatment status.
Randomization Unit
The unit of randomization is the survey respondent.
Was the treatment clustered?
Experiment Characteristics
Sample size: planned number of clusters
Sample size: planned number of observations
3,040 respondents
Sample size (or number of clusters) by treatment arms
972 respondents in the mortgage treatment arm, 349 respondents in the assessment limit treatment arm, 361 respondents in the income-based tax reduction treatment arm.
Minimum detectable effect size for main outcomes (accounting for sample design and clustering)
IRB Name
University of California, Berkeley Office for Protection of Human Subjects
IRB Approval Date
IRB Approval Number
Post Trial Information
Study Withdrawal
Is the intervention completed?
Is data collection complete?
Data Publication
Data Publication
Is public data available?
Program Files
Program Files
Reports, Papers & Other Materials
Relevant Paper(s)