THE DISTRIBUTIONAL IMPACT OF PROPOSITION 13: A MICROSIMULATION APPROACH

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Abstract
This paper focuses on the distribution among California residents of tax reductions mandated by Proposition 13. The results are based on a microsimulation model which accounts for the complexities of the property tax system, and allows for the evaluation of various shifting assumptions. When compared to a world without tax limitations, Proposition 13 results in the largest tax reductions relative to household income going to both low income and high income households, with the smallest reductions being received by middle income households. When compared to an equal sized alternative tax cut of sales, income, and residential property taxes, Proposition 13 is considerably more beneficial to households with incomes below $25,000. Proposition 13 is also found to dramatically increase the horizontal inequity of the property tax.