Studies in Fiscal Federalism and State–local Finance series
Edited by Dick Netzer
Chapter 5: Is zoning a substitute for, or a complement to, factor taxes?
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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