Ive had the experience a few times of having the municipal property assessment office set the value of my house above what I thought it was worth in the market. I even once filed an appeal and after months of going through a rather unfriendly process in fact, just days before my scheduled appearance in front of the appeals judge got a call from the assessment office conceding they had over estimated.
The experience left me wondering if it was an innocent mistake or if there was a systematic tendency to over-estimate property values in order to get more tax revenues. A recently released paper by two economics professors suggests the latter suspicion may have some validity, especially when the local government is suffering from a budget squeeze,
In Political Costs and Fiscal Benefits: The Political Economy of Residential Property Value Assessment, Michael Makowsky and Shane Sanders note that property taxes have an element of subjectivity to them. Assessors can come up with a range of estimates given discretion in selecting comparable properties, neighbouring areas, time frames, etc.
So they hypothesized that local governments strapped for funds might use the flexibility inherent in the assessment process as way to increase tax revenues. They examined 15 years of panel data from351 Massachusetts municipalities, and after controlling for market variables, found evidence in support of the hypothesis.
In particular, whenever Massachusetts citizens voted to uphold a cap on tax increases, property assessments tended to rise faster than market conditions. If they voted to override the cap, assessments tended to stay in line with market conditions.