Reform During Crisis: The Transformation of California's Fiscal System During the Great Depression

Abstract

In the midst of the Great Depression, California engaged in a massive restructuring of its tax system, reducing reliance on the property tax and introducing sales and income taxes. Our analysis suggests that this restructuring, which included a voter referendum, was primarily driven by a desire to change the mix rather than the level of taxation. Nonetheless, by introducing new taxes that had a higher revenue elasticity than the existing taxes, California created a revenue system that allowed the rapid growth of spending to continue.