When do property taxes matter? Tax salience and heterogeneous policy effects

•We link internal Census ACS records to national Zillow ZTRAX data to examine property tax misperceptions across US households.•Property tax misperceptions (mean absolute error) are moderate at 15.4%, on average, but vary systematically by household characteristics and across states.•Incentives matter; households with greater motivation to be attentive (e.g., higher home value, higher tax rates) are more accurate.•Information costs matter; households with higher education, income, experience (proxied by age), and those who pay property taxes directly (rather than through their mortgage) are more accurate.•In a meta-analysis, we find heterogeneity in misperceptions by state explain much of the variation of findings in the property tax capitalization literature. Taxes create incentives; yet, the potency of these incentives may depend on the salience and household perception of the tax itself. We investigate this issue in the context of property taxes, exploring how accurately households perceive their property tax liabilities and what factors determine misperception. Leveraging a unique national dataset, created by linking Zillow's ZTRAX data to internal data from the American Community Survey, we first compare survey responses for how much households think they pay in property taxes to how much they actually pay based on municipal administrative records from ZTRAX. While homeowner tax perceptions are not substantially biased on average, we observe significant inaccuracy and systematic bias across different household(er) characteristics, institutional settings, and across states. Given that the vast majority of studies in the property tax capitalization literature use data concentrated in one state or locality, we also explore whether variation in tax misperceptions across states can help explain the heterogeneity in property tax effects on home prices. Results from a meta-analysis show that studies conducted in states with higher property tax misperceptions are significantly less likely to find property tax policy changes are fully capitalized into home prices.