Fiscal Externalities of Transaction Taxes: Evidence from the Los Angeles Mansion Tax

By: Daniel Green, Vikram Jambulapati, Jack Liebersohn and Tejaswi Velayudhan

Format:Print
| Language:English
| Pages:46

Abstract

We estimate the fiscal externalities of a property transfer tax, the Los Angeles “Mansion Tax”, on the revenues from property taxes when assessed values are closely tied to transactions. In California, as in over half of U.S. states, growth in tax as- sessments between transactions lags market values, so any reduction in transaction frequency reduces the growth of property tax revenue. The fiscal externality is sizable: the resulting property tax revenue loss conservatively offsets at least two-thirds of the revenue generated by the transfer tax. The net revenue loss is larger for high-value and commercial properties.