Proposition 13: An Equilibrium Analysis

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Citation: Ayse İmrohoroğlu, Kyle Matoba, Şelale Tüzel (2018) Proposition 13: An Equilibrium Analysis. American Economic Journal: Macroeconomics (RSS)
DOI (original publisher): 10.1257/mac.20160327
Semantic Scholar (metadata): 10.1257/mac.20160327
Sci-Hub (fulltext): 10.1257/mac.20160327
Internet Archive Scholar (search for fulltext): Proposition 13: An Equilibrium Analysis
Download: http://www-bcf.usc.edu/~aimrohor/Prop 13 Final.pdf
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Summary

"The objective of this paper is to construct a carefully calibrated dynamic general equilibrium model to assess the effects of Proposition 13 on housing allocations, prices, and welfare of households."

Authors describe model, then series of outputs of model with different assumptions.

One set compares pre-Prop 13, Prop 13, and the elimination of Prop 13 and revenue-neutral replacement with a lower (but not tenure-based) property tax rate, a decreased sales tax, or a decreased income tax. Close to observed, Prop 13 house prices are higher (100) than pre-Prop 13 (87) reflecting net present value of lower property taxes to property owners, while the three revenue neutral Prop 13 elimination scenarios produce slightly higher prices (103.7, 101.2, 101.8 respectively) due to elimination of link between assessments and tenure.

Prop 13 seems to have a small impact on moving rate (3.3% decrease; elimination would produce 4% increase) because movers are affected by other large expenses as well as facing the possibility of moves necessitated by shocks.

Lifetime welfare increases of 3 revenue-neutral elimination scenarios are 0.3%, 1.2%, and 1%, the first being muted do to larger increase in housing prices, the sales and income tax reduction larger increases due to decline in burden when agents are young and borrowing-constrained.

Also model support of different groups (eg owners, renters, age, income) of the 3 elimination scenarios. Lower sales tax generally garners the most support (over 50%), while renters and lower income groups support more than owners and high income groups, and support declines with age.

Theoretical and Practical Relevance

Notes impact on commercial real estate and on government size are not covered.

Not addressed: can model shed light on impact of larger revenue-neutral changes, eg bringing property tax back to pre-1978 levels with corresponding large decreases in sales and income taxes?