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Property Tax Limitations and Mobility: The Lock-in Effect of California's Proposition 13

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  • Nada Wasi
  • Michelle J. White

Abstract

Proposition 13, adopted by California voters in 1978, mandates a property tax rate of one percent, requires that properties be assessed at market value at the time of sale, and allows assessments to rise by no more than 2% per year until the next sale. In this paper, we examine how Prop 13 has affected the average tenure length of owners and renters in California versus in other states. We find that from 1970 to 2000, the average tenure length of owners and renters in California increased by 1.04 years and .79 years, respectively, relative to the comparison states. We also find substantial variation in the response to Prop 13, with African-American households responding more than households of other races and migrants responding more than native-born households. Among owner-occupiers, the response to Prop 13 increases sharply as the size of the subsidy rises. Homeowners living in inland California cities such as Bakersfield receive Prop 13 subsidies averaging only $110/year and their average tenure length increased by only .11 years in 2000, but owners living in coastal California cities receive Prop 13 subsidies averaging in the thousands of dollars and their average tenure length increased by 2 to 3 years.

Suggested Citation

  • Nada Wasi & Michelle J. White, 2005. "Property Tax Limitations and Mobility: The Lock-in Effect of California's Proposition 13," NBER Working Papers 11108, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:11108
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    References listed on IDEAS

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    1. Mark Hoven Stohs & Paul Childs & Simon Stevenson, 2001. "Tax Policies and Residential Mobility," International Real Estate Review, Asian Real Estate Society, vol. 4(1), pages 95-117.
    2. Ferreira, Fernando, 2010. "You can take it with you: Proposition 13 tax benefits, residential mobility, and willingness to pay for housing amenities," Journal of Public Economics, Elsevier, vol. 94(9-10), pages 661-673, October.
    3. O'Sullivan Arthur & Sexton Terri A. & Sheffrin Steven M., 1995. "Property Taxes, Mobility, and Home Ownership," Journal of Urban Economics, Elsevier, vol. 37(1), pages 107-129, January.
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    6. Gruber, Jonathan, 1994. "The Incidence of Mandated Maternity Benefits," American Economic Review, American Economic Association, vol. 84(3), pages 622-641, June.
    7. Caroline M. Hoxby & Ilyana Kuziemko, 2004. "Robin Hood and His Not-So-Merry Plan: Capitalization and the Self-Destruction of Texas' School Finance Equalization Plan," NBER Working Papers 10722, National Bureau of Economic Research, Inc.
    8. Lang, Kevin & Jian, Tianlun, 2004. "Property taxes and property values: evidence from Proposition," Journal of Urban Economics, Elsevier, vol. 55(3), pages 439-457, May.
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    Citations

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    Cited by:

    1. Ferreira, Fernando, 2010. "You can take it with you: Proposition 13 tax benefits, residential mobility, and willingness to pay for housing amenities," Journal of Public Economics, Elsevier, vol. 94(9-10), pages 661-673, October.
    2. Shan, Hui, 2010. "Property taxes and elderly mobility," Journal of Urban Economics, Elsevier, vol. 67(2), pages 194-205, March.
    3. Patrick Kline & Enrico Moretti, 2014. "People, Places, and Public Policy: Some Simple Welfare Economics of Local Economic Development Programs," Annual Review of Economics, Annual Reviews, vol. 6(1), pages 629-662, August.
    4. Ferreira, Fernando & Gyourko, Joseph & Tracy, Joseph, 2010. "Housing busts and household mobility," Journal of Urban Economics, Elsevier, vol. 68(1), pages 34-45, July.
    5. Cheung, Ron & Cunningham, Chris, 2011. "Who supports portable assessment caps: The role of lock-in, mobility and tax share," Regional Science and Urban Economics, Elsevier, vol. 41(3), pages 173-186, May.
    6. Ihlanfeldt, Keith R., 2011. "Do Caps on Increases in Assessed Values Create a Lock-in Effect? Evidence From Florida’s Amendment One," National Tax Journal, National Tax Association, vol. 64(1), pages 8-25, March.
    7. Fernando Ferreira & Joseph Gyourko & Joseph Tracy, 2012. "Housing busts and household mobility: an update," Economic Policy Review, Federal Reserve Bank of New York, issue Nov, pages 1-15.
    8. John Deskins & William Fox, 2008. "Measuring Behavioral Responses to the Property Tax," International Center for Public Policy Working Paper Series, at AYSPS, GSU paper0816, International Center for Public Policy, Andrew Young School of Policy Studies, Georgia State University.
    9. Ayse Imrohoroglu, 2014. "Proposition 13: An Equilibrium Analysis," 2014 Meeting Papers 1250, Society for Economic Dynamics.
    10. Korytin, A.V. & Shatalovà, Svetlana Sergeevna, 2016. "Improving the Tax Relief on Personal Property," Working Papers 2334, Russian Presidential Academy of National Economy and Public Administration.
    11. Springer, Job D. & Lusby, Aaron K. & Leatherman, John C. & Featherstone, Allen M., 2007. "Property Tax Lids and the Effect on Kansas," 2007 Annual Meeting, February 4-7, 2007, Mobile, Alabama 34887, Southern Agricultural Economics Association.
    12. Mark Hoven Stohs & Yun W. Park, 2007. "Residential Stability or Rational Bubble: Proposition 13 in Southern California," International Real Estate Review, Asian Real Estate Society, vol. 10(1), pages 26-47.
    13. Chris Cunningham & Robert R. Reed, 2012. "Housing wealth and wage bargaining," FRB Atlanta Working Paper 2012-20, Federal Reserve Bank of Atlanta.
    14. Wayne Archer & David Ling & Brent C Smith, 2010. "Ownership Duration in the Residential Housing Market: The Influence of Structure, Tenure, Household and Neighborhood Factors," The Journal of Real Estate Finance and Economics, Springer, vol. 40(1), pages 41-61, January.

    More about this item

    JEL classification:

    • H2 - Public Economics - - Taxation, Subsidies, and Revenue
    • R2 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis
    • H7 - Public Economics - - State and Local Government; Intergovernmental Relations
    • K2 - Law and Economics - - Regulation and Business Law

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