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 5: Is zoning a substitute for, or a complement to, factor taxes?

William T. Bogart

Subjects: economics and finance, public finance


William T. Bogart 1 INTRODUCTION Local land use controls restrict the amount of factors of production that can be used in various activities. As such, they are quotas on the import of factors of production. An alternative arrangement would be to impose a tariff on the import of factors of production, but this is unconstitutional. This chapter explores the extent to which zoning is equivalent to factor taxes in its impact on factor prices, local production and intrametropolitan trade.1 There are several interesting complications in the analysis. First, zoning is typically a discontinuous constraint on land use. Under a regime that sets a maximum floor–area ratio (FAR), any FAR that is less than the limit is unconstrained. By contrast, the most common factor taxes are more continuous. For example, an increase in property value will increase the property tax, all else being equal. Second, imposing a constraint in one municipality will affect behavior in other municipalities. Their actions will affect land values and trade patterns throughout the metropolitan area, not only in the municipality making the land use decision. Third, zoning is not permanent, but is subject to change. Thus we need to consider the dynamic process by which land use decisions are made, noting that the existing zoning regulations are only the starting point for future negotiations. This chapter synthesizes previous models of trade and zoning to analyze the extent to which zoning is a complement to or substitute for factor taxes. The point that zoning...

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