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 7: Land use regulations and the property tax: costÂ…benefit analyses

John F. McDonald

Subjects: economics and finance, public finance


7. Land use regulations and the property tax: cost–benefit analyses John F. McDonald 1 INTRODUCTION The purpose of this chapter is to develop theoretical analyses of several land use and property taxation policies that are employed by local governments. The goals of each model presented are twofold: to gain understanding of the effects of policies as they operate in the relevant markets, and to formulate reasonably simple methods for cost–benefit analyses of these policies. Numerical examples or empirical results are employed to illustrate the possible use of each model. The chapter begins with an examination of zoning. Zoning ordinances allocate land to uses and regulate the intensity of land use. The first model examines the allocation of a parcel of land to a particular use by land use zoning. The parcel in question is subject to property taxation, and it is assumed that there is unemployed labor residing in the jurisdiction. The next section continues the examination of zoning by studying the effects of land use intensity regulations. This section is followed by a study of the effects of changes in property taxation (the tax on land and structures) on the intensity of land use. Earlier versions of these models were published in McDonald (1979;1983; 2001). McDonald (1983) discussed property tax changes applied only to capital or land. The next model covered in the chapter examines the property tax and the size of the tax base at the local jurisdiction level. The...

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