Abstract
This paper examines whether adoption of a parcel tax improves fiscal conditions in California local governments. A parcel tax is commonly known as a lump-sum property tax on a unit of parcel. Because of the ad-valorem tax cap in the state constitution, a non-ad-valorem property tax is only way to extract tax revenues from real estate. Local governments can opt for a parcel tax when a two-thirds of supermajority approves it in a local referendum. Although the use of parcel tax becomes increasingly prevalent, the effect of a parcel tax adoption on local fiscal condition has not been well assessed. We fill this gap in the literature by examining the effect of parcel tax adoption on local fiscal conditions. We take the regression discontinuity approach by comparing local governments that gained favorable votes just above and below the two-thirds threshold to see whether parcel taxes improve local fiscal condition. Our results show that there has been an increase in revenue from local sources and in current expenditure in school districts where a parcel tax was approved with votes just above the supermajority requirement, but the results are not robust. In public-safety districts, we did not find any effect of parcel tax adoption on revenue or expenditure.