Institute for Research on Labor and Employment

Since California voters approved a state constitutional amendment to limit property taxes in 1978, most states in the United States have adopted legal limits on the annual increase of the property tax levy. Prior studies of the fiscal impact of property tax limitation on local government come to mixed conclusions. This study summarizes the literature with meta-regression analyses of the effect of property tax limitation on per capita property tax revenues, non-property-tax revenues, and total local revenues and expenditures. Aggregating estimates across studies provides better evidence that local governments are unable to circumvent limitations on property tax increases. Property tax limitations reduce property tax revenues. They may lead to compensatory increases in other taxes, but on average such increases do not fully make up for the foregone property tax revenue, and the net impact of a property tax limitation is therefore substantial fiscal constraint in the local public sector. By reducing the taxation of wealth and the spending on locally provided public services, property tax limitation may have a variety of perverse consequences for social life.