Document Type

Thesis - Open Access

Award Date

2026

Degree Name

Master of Science (MS)

Department / School

Economics

First Advisor

Evert Van der Sluis

Abstract

Property taxes are the primary revenue instrument of local governments in the United States, yet the burdens they impose are distributed unevenly. Farmland, because it cannot be relocated, often absorbs a disproportionate share. This paper examines two related questions: what fiscal factors determine how heavily agricultural land is taxed, and do those tax rates capitalize into farmland asset values? Using an annual panel of Iowa, Illinois, Indiana, Kansas, Minnesota, Nebraska, and Wisconsin from 2009 to 2022, we first document how each state allocates property tax revenue across four major spending categories (education, public welfare, health, and utilities) finding that all seven states in this panel consistently run local-level fiscal gaps — meaning spending obligations exceed property tax revenues — a pattern distinct from the balanced-budget requirements that apply at the state government level in nearly all U.S. states, with education absorbing the largest share of expenditure in every case. Diagrams illustrate that despite substantial revenue collection, spending obligations outpace income across the panel, creating persistent fiscal pressure that bears directly on how local governments set property tax rates. Against this backdrop, we estimate a two-equation panel model linking fiscal structure variables (the non-agricultural share of property tax revenue, education spending, and the local-to-state revenue ratio) to effective tax rates on farmland and trace those rates through to farm asset values using two-stage least squares. The local-to-state revenue share is positively associated with effective agricultural tax rates (β = +0.565, p = 0.021), a finding inconsistent with the fiscal federalism hypothesis. Tax base diversification (NonAgShare) emerges as the primary within-state determinant than an annual driver. The capitalization of the effective tax rate into land values is statistically inconclusive within the state-level specification (p = 0.537). Taken together, the findings suggest that the vertical structure of fiscal authority (how property tax responsibility is divided between local and state governments) matters more for agricultural tax burdens than expenditure levels alone.

Publisher

South Dakota State University

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Rights Statement

In Copyright