How does Prop 13 work? The people who wrote that paper are saying that it is a subsidy; absolutely not. The tax rate is frozen, so as I understand it, the person simply pays a lower rate, it is not a system where a tax is paid and then has it refunded to them.

I am going to be highly critical of an economic research paper that looks at a tax as a subsidy, so here we go:

1. A tax rate lower because of a law than your neighbor is not a subsidy. A child deduction on an IRS form is not a subsidy.

2. The average length of stay for a home owner was increased by .11 years for Bakersfield, 2 years for Los Angeles, and 3 or more year for the Bay Area. Bakersfield, as far as I know, has no rent control, so there is an argument that this is essentially a rounding error. Los Angeles and the Bay Area are rent control cities, no where in the paper is this brought up as an externality forcing the longer periods of tenure ownership.

3. Table 1A shows that rental tenure increased from 4.30 to 5.25 years from 1970 to 2000, this is essentially the same increase as that of 10.76 years to 13.42 years for the home owners; 24.7% for the home owners and 22.1% for the renters. This should invalidate pointing to Prop 13 as the reason for longer owner stays.

4. Florida and Texas pass the same law and the paper simply says, forget them. The two states, Florida and Texas, go on to show that there is no impact from Prop 13, thus further invalidating their study.

5. Not one mention of rent control being a reason why people may not want to move out of their existing dwelling and purchase a home.

This may be a good paper to reference as a point, it is a horrible paper by ignoring externalities, comparable examples, and not examining differences between areas (Bakersfield vs. Los Angeles vs. San Francisco).

A child deduction is absolutely a subsidy for having children. Not having you pay $500 is economically equivalent to giving you $500.

it's more direct a subsidy than that -- there are refundable child tax credits (you can get any overage paid to you; it's not just deductible).

> Bakersfield, as far as I know, has no rent control, so there is an argument that this is essentially a rounding error.

Bakersfield is also a terrible place to live, from what I hear.

Texas limits yearly increases to 10%. Yes in hot markets this suppressed the tax increases but your taxes will eventually catch up.

No doubt it reduces liquidity. Probably increases marginal prices as well. But I doubt it makes real estate more valuable in the aggregate except for maybe via second-order effects like policy stability or population composition.

Real estate has value because of the potential flows of rent that can be obtained. Property taxes fall on both land and improvements. While the taxes on improvements are passed on to the tenant, the taxes on land cannot be, as Adam Smith showed. The rent of land, being a case of a locational monopoly, is always as high as it can be.

Thus, taxing land simply reduces the flows of rent that can be kept from controlling a location, and thus reduces the purchase price.

This makes it easier for entrepreneurs to acquire land, since the up front costs are lower.

I hadn't heard of this principle that it's impossible to pass tax increases on to tenants. I can't really believe Adam Smith has shown this to be impossible, when I know people who have said (paraphrasing), "The previous landlord has raised rents to match increases in taxes, water, garbage bills(the utilities are effectively costs of land), and we consider this reasonable".

I feel like you could even make a bet on it: There's a nearby trailer park with some mobile homes on it. This should have value solely in the land, since the homes can be removed from the property. I'm counting the availability of utilities in the land. The county tax assessment on both land and improvements is public information. Suppose the tax assessment as a whole goes up 1.7%. If the trailer park owner is able to secure a 1.7% increase over the next year from his tenants, you pay him $10,000. Otherwise, he pays you $10,000. Do you trust Adam Smith enough to take that bet? It should be impossible, since that 1.7% includes an increase of taxes on the land which you're saying cannot be passed onto the tenant.