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Title: Proposition 13: An Equilibrium Analysis

Citation Type: Miscellaneous

Publication Year: 2014

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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 and restricted future property tax increases. In this paper, we study the implications of Proposition 13 on house prices, housing turnover, and household welfare 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 on those who are young and borrowing constrained.

Url: http://www-bcf.usc.edu/~tuzel/prop_13-Dec2014.pdf

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

Publisher: University of Southern California

Data Collections: IPUMS USA

Topics: Housing and Segregation

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