The Property Tax, Land Use and Land Use Regulation

The Property Tax, Land Use and Land Use Regulation

Studies in Fiscal Federalism and State–local Finance series

Edited by Dick Netzer

Dick Netzer, a leading public finance economist specializing in state and local issues and urban government, brings together in this comprehensive volume essays by top scholars connecting the property tax with land use. They explore the idea that the property tax is used as a partial substitute for land use regulation and other policies designed to affect how land is utilized. Like many economists, the contributors see some type of property taxation as the more efficient means of helping to shape land use. Some of the essays analyze a conventional property tax, while others consider radically different systems of property taxation.

Chapter 1: Taxes on buildings and land in a dynamic model of real estate markets

Alex Anas

Subjects: economics and finance, public finance


Alex Anas 1 INTRODUCTION The Henry George (1879) single tax is a tax on land. But how should the tax be levied? The simplest example would be a lump sum tax on each unit of land to be paid regardless of what is to be done with that land and disregarding whether it is currently developed or not. Such a tax system is generally presumed to be neutral, as George had envisioned. And, it is presumed, one could vary the tax from one unit of land to the other: the implied tax rate as a proportion of land value would not have to be the same everywhere to achieve neutrality. But such a lump sum tax system – while probably deserving a lot more attention than it has received – would be considered inequitable unless it was related either to the benefits received by the owners of the land or to the landowner’s ability to pay. Arguably, in an efficient capital market, the best measure of a landowner’s ability to pay is his land value. But can tax authorities or econometricians accurately measure the value of land covered with buildings? Mills (1998) has argued that they cannot. The consequences of inaccurate measurement could be quite severe. Consider the example of an owner of a building who is planning to demolish his building and sell the land because that is the most profitable action. Suppose that the tax authority, not knowing the land value, sets the lump sum tax on...

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