Proposition 13: An Equilibrium Analysis
- American Economic Journal: Macroeconomics (Forthcoming)
There are many federal, state, and local laws that distort housing
decisions and prices. However, it is often difficult to tease out the quantitative
impact of such policies. In this paper, we examine the implications
of one of the most significant tax changes initiated by voters in the
United States on house prices, housing turnover, and household welfare.
In 1978 California passed Proposition 13, which lowered property tax
rates and restricted future property tax increases. We find that, the
introduction of Proposition 13 leads to a 15 percent increase in house prices
and a 3.3 percent decrease in the moving rates. The elimination of Proposition
13, however, leads to modest changes in house prices and mobility
but sizable welfare gains.
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