Tax Compliance in a Crisis: Evidence from the Great Depression, 1929–1936

Abstract

This paper explores the factors associated with the non-payment of property taxes during the Great Depression. US cities experienced skyrocketing levels of property tax non-compliance during 1929–1933, with an average loss of a quarter of their tax revenue in 1933. We present two main findings. First, we find that tax delinquency, the American term for non-payment of taxes, is negatively associated with economic conditions and taxpayers’ ability to pay, and is positively correlated with the presence of elections. Cities that experienced higher levels of delinquency tended to have less construction of new housing units and lower median income, and delinquency was higher during mayoral election years. We find no association between delinquency and either the burden of taxation (the property tax rate) or tax administrations, measured by the salaries of tax assessors and the presence of reduced rates for personal property. Second, despite the transitory nature of this episode, tax delinquency had a persistent impact on municipal revenue. Moving from the 25th to the 75th percentile of delinquency in 1929–1933 is associated with a 5% lower tax base valuation, tax revenue, and municipal spending at the end of the Great Depression.