Full Citation

Title: Proposition 13: An Equilibrium Analysis

Citation Type: Working Paper

Publication Year: 2014

ISBN:

ISSN:

DOI:

NSFID:

PMCID:

PMID:

Abstract: In 1978, California passed one of the most significant tax changes initiated by voters in the United States. Proposition 13 lowered property tax rates, restricted future property tax increases, and tied property assessments for tax purposes to housing tenure. In this paper, we study the implications of Proposition 13 on house prices, housing turnover, and welfare of the households in an economy populated with overlapping generations of agents who derive utility from consuming goods and housing. For our benchmark calibration, the introduction of Proposition 13 leads to an 18% increase in house prices and a 17% decrease in the probability of moving. We study the transition dynamics of moving from an economy featuring Proposition 13 to alternative revenue-neutral regimes with proportional real estate taxes. Overall, our findings indicate that elimination of Proposition 13 leads to small changes in house prices and modest increases in mobility depending on how revenue neutrality is achieved. Welfare gains of reform are quite large and stem mostly from the decline in the tax burden when young and borrowing constrained.

User Submitted?: No

Authors: Tuzel, Selale; Matoba, Kyle; Imrohoroglu, Ayse

Series Title:

Publication Number:

Institution:

Pages:

Publisher Location:

Data Collections: IPUMS USA

Topics: Poverty and Welfare

Countries: