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Finance and Economics Discussion Series
The Finance and Economics Discussion Series logo links to FEDS home page Restraining the Leviathan: Property Tax Limitation in Massachusetts
David M. Cutler, Douglas W. Elmendorf, and Richard Zeckhauser

Abstract: We examine the effects of Proposition 2-1/2--a property tax limitation law approved by Massachusetts voters in 1980--and assess voter satisfaction with these effects. We find that the proposition had a smaller effect on local revenues and spending than expected, as a result of both amendments to the law and a strong economy. Voters in 1980 believed there was significant waste in local government, partly because of an inability to monitor local officials. Proposition 2-1/2 curbed these agency losses, but direct local override votes and municipal expenditure patterns imply that the proposition initially reduced spending more than voters wanted.

Keywords: Property tax limits, agency problems

Full paper (246 KB PDF) | Full paper (431 KB Postscript)

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