The Israeli residential local property tax is an important source of income enabling municipalities to provide services. The current legislative framework does not link the tax to property value. Instead it precludes the costly assessment of each home by using a spatial and qualitative approach. Each local authority determines different rates by zones and building categories within its municipal boundaries. Generally, homes of better quality located in prime areas in each city pay the highest rates per square meter. The assessment is actually the product of the rate per square meter by assessable meterage. The comparison between local authorities is complicated even more by the fact that each one of them has different inclusion criteria for the surface area and employs different measurement standards. In these circumstances general opinion views property tax as arbitrary, inequitable and ultimately regressive.

This study examines household expenditure on property tax by using national surveys for the years 1997-2005. The statistical analysis suggests that property value is the most significant predictive variable of local property tax, followed by income. Elasticity with respect to both variables is smaller than unitary, reflecting the regressive nature of tax burden. However, the national trend linking the two variables prevails over the local distinction. Probably, it is the very existence of a distinctive assessment in each locality that enables linking the de facto tax paid to property value nationwide.

From an international perspective it is clear that the Israeli system achieves the linkage between tax and property value without a more complicated mean at the expense of transparency and simplicity to comprehend and to apply. Significant improvement in equity can be achieved simply by widening the rates of the existing tax criteria, so that they bear a better relation to the large disparity in both property value and wealth. The proposal to unify criteria for determining the rates across the state completely invalidates the original intention of levying a differential tax, guided by principles of equity and fairness. Furthermore, a comprehensive reform to implement property value assessment is meaningless since, the existing mechanism already achieves it. The annual tax legislation issued by the local authorities enables them to incrementally update the criteria. Since the housing stock does not change much from year to year it allows a continuous matching process within and between local municipalities.