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Voters hold the key: lock-in, mobility, and the portability of property tax exemptions

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  • Ron Cheung
  • Chris Cunningham

Abstract

Since California voters approved Proposition 13 in 1978, fifteen states have enacted caps on the annual growth in assessed property values. These laws often impose a great burden on municipal finances and create horizontal inequity among homeowners. Why do voters choose to limit local government in this way? Reasons may include controlling the power of special interests, addressing agency failures of government officials (the "Leviathan" hypothesis), or preserving the impact of a current but fleeting antitax political alignment. Yet research has found that voters' perception of a limitation's fiscal consequences do not match reality, questioning the rationality of voter behavior. To counter this position, another strand of literature argues that support for tax limitations is driven not by perceptions of government inefficiency but by reasonable expectations of who will ultimately bear the tax limitation's burden. We explore this view by exploiting the differential tax treatment generated by assessment caps in the context of a recent, novel referendum in Florida. We examine voter support for a 2008 constitutional amendment that included a unique provision making the existing assessment cap portable within the state. We test the hypothesis that voters understood the mobility consequences of tax limitations and the net burden of the cap. We find that high potential tax savings and high expected mobility rates result in higher support for portability. We also find that the degree of racial segregation, the presence of nonresidential tax bases, and the share of migrants from out of state all contribute to support for the amendment. Results suggest that voters were as concerned with reducing their own tax share at the expense of other property owners as they were with curtailing local expenditures.

Suggested Citation

  • Ron Cheung & Chris Cunningham, 2009. "Voters hold the key: lock-in, mobility, and the portability of property tax exemptions," FRB Atlanta Working Paper 2009-19, Federal Reserve Bank of Atlanta.
  • Handle: RePEc:fip:fedawp:2009-19
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    1. Dye, Richard F. & McMillen, Daniel P. & Merriman, David F., 2006. "Illinois' Response to Rising Residential Property Values: An Assessment Growth Cap in Cook County," National Tax Journal, National Tax Association;National Tax Journal, vol. 59(3), pages 707-716, September.
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    Blog mentions

    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. Limiting Property Tax Assessments to Slow Gentrification
      by Real Estate Research in Real Estate Research on 2014-03-27 18:22:14

    More about this item

    JEL classification:

    • R5 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Regional Government Analysis
    • H7 - Public Economics - - State and Local Government; Intergovernmental Relations
    • H5 - Public Economics - - National Government Expenditures and Related Policies

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