2025 Spring Seminar Series Seminar: Ikhwan Kweon University of Kentucky

Understanding the Mechanisms behind Revenue Size, Revenue Volatility, and Tax Limits

Abstract: Following California’s passage of Proposition 13 in 1978, most U.S. states implemented tax and expenditure limitations (TELs) at both the state and local levels. While research explores whether TELs constrain revenues and expenditures as intended, the pathways through which TELs influence both revenue size and volatility remain poorly understood. Revenue volatility, which impacts expenditure stability, carries significant implications for public welfare.

This paper utilizes administrative data from New York State to examine the mechanisms through which the state’s 2011 property tax levy cap influences county revenue size and volatility. Findings from the event study indicate that counties constrained by the levy cap initially experience no significant changes in property tax levels or volatility, likely due to the frequent use of overrides. However, in later years, as overrides become less common, both property tax levels and volatility decline. Despite this reduction, total tax levels and volatility remain stable, suggesting a compensatory shift from property tax revenues to non-property tax sources.

I will further examine how these mechanisms vary across counties with different characteristics and how they contribute to heterogeneous effects on revenue size and volatility. Understanding these mechanisms enables the design of more effective and equitable TELs by showing, for example, that TELs with flexible override provisions may fail to constrain revenue levels or volatility and that certain jurisdictions, such as high-income areas, may remain largely unaffected.