A Markov Chain Monte Carlo Analysis of the Effect of Two-Rate Property Taxes on Construction

Plassmann, Florenz; Tideman, Nicolaus

doi:10.1006/juec.1999.2140

Cited by 34 publications

(31 citation statements)

References 18 publications

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“…Their results indicate that the split-rate tax results in more efficient growth patterns: the lower the structure rate relative to land increased the capital/land ratio, and was positively associated with more housing units rather than bigger units consistent with the curbing of sprawl. These findings are consistent with older studies of Pittsburgh implementing the split-rate tax for the consequences on building activity (Oates and Schwab, 1997) and the number of issued permits (Plassmann and Tideman, 2000). Studies of New Zealand, which offer similar cases to those found in Pennsylvania, have examined the distributional consequences of land versus property taxation.…”

Section: Land Tax Theory and Researchsupporting

confidence: 85%

Could Land-Only Taxation Save Local Government in Indiana?

Ross

Lee

2015

J. Public Nonprof Aff.

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Indiana employs the property tax in local government finance differently than any other state in the union. While many state and local governments impose limitations on the use of property taxes, Indiana indirectly limits how much property tax revenue will actually arrive with a series of taxpayer-level property tax caps. Since these revenue losses can only be calculated after spending decisions are completed, they represent structural deficits. Also, piecemeal exemptions from the property tax base, like those on business personal property, now have revenue-driven problems from property tax reforms in addition to the long-standing equity concerns.This essay suggests that a potential improvement to the current Indiana system might be found in the very old idea of land-only taxation, or at least an imperfect version of it. While the land tax is seldom employed worldwide, its advantages have long been well understood and advocated by public finance experts. In fact, many tax economists regard the property tax to be a two-faced bundle of the "worst tax" and the "best tax" (Fisher, 1996). Intangible and tangible personal property, as well as land improvements, represent the worst side of the tax; taxation upon land only, however, is thought to represent the best. An ideally-structured tax on land is progressive, economically efficient, and friendly to both economic development and the environment.A land-only tax may offer unique advantages under the existing Indiana property tax system that caps the tax bill as a percentage of market value. The creation of an exemption on all components except the land portion of property would generate a wedge between the "net" value used in calculating tax bills from the "gross" value that is used in calculating the taxpayer's maximum possible bill. The incentive to invest in property development would likely be no worse than current policy for taxpayers who are at the cap, but would be more attractive for taxpayers who are not. The equity implications are unclear until empirical analysis could review Could Land-Only Taxation Save Local Government in Indiana? 30 this issue, but the potential for incentivizing private investment that would represent a long-run solution to local government revenue shortages is clear.The next section of this paper will review the general arguments for a land tax and what the current understanding is about the validity of land tax theory. Section 3 briefly overviews the history of the property tax caps in Indiana and explains their workings. Section 4 specifies a proposed land-only tax system and illustrates how it would impact the property tax calculations for government and taxpayers. The conclusion summarizes the arguments and provides direction for empirical work needed to analyze the actual impacts of the policy. Land Tax Theory and ResearchOverview of General Theory. Henry George's Progress and Poverty (1879) is widely regarded as the most seminal treatment of a land tax policy. George advocated a single tax on land values to finance all publi...

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Section: Land Tax Theory and Researchsupporting

confidence: 85%

Could Land-Only Taxation Save Local Government in Indiana?

Ross

Lee

2015

J. Public Nonprof Aff.

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“…Most empirical studies have failed to find significant effects. In their own analysis Plassmann and Tideman (2000) find that the difference between tax on land and tax on buildings has a positive effect on the number of building permits but no significant effect on value per permit. Following Plassmann and Tideman (2000), count data analysis is chosen as the econometric framework.…”

Section: Introductionmentioning

confidence: 93%

“…Both two-rate and three-rate property tax systems have been analyzed in the theoretical literature on urban development and there are empirical studies using data from two-rate jurisdictions (see Plassmann and Tideman, 2000). However, the three-rate system with preferential treatment for developed land and raw site 1 Sometimes the replacement cost of the building is not subtracted and the tax base is the value of the whole property.…”

Section: Introductionmentioning

confidence: 99%

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Three-rate property taxation and housing construction

Lyytikäinen

2009

Journal of Urban Economics

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“…By increasing land taxes, which are neutral in terms of development decisions, the city was able to increase its revenues without increasing other taxes that could have had a distortionary impact on development decisions. Plassmann and Tideman (2000) also found that a split-rate tax in Pennsylvania resulted in a 3 to 4% increase in residential construction.…”

Section: Land Taxation: Which Alternative Discourages Sprawl?mentioning

confidence: 96%

Financing Green Urban Infrastructure

Merk

Saussier²,

Staropoli

et al. 2012

OECD Regional Development Working Papers

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This paper presents an overview of practices and challenges related to financing green sustainable cities. Cities are essential actors in stimulating green infrastructure; and urban finance is one of the promising ways in which this can be achieved. Cities are key investors in infrastructure with green potential, such as buildings, transport, water and waste. Their main revenue sources, such as property taxes, transport fees and other charges, are based on these same sectors; cities thus have great potential to -green‖ their financial instruments. At the same time, increased public constraints call for a mobilisation of new sources of finance and partnerships with the private sector. This working paper analyses several of these sources: public-private partnerships, tax-increment financing, development charges, value-capture taxes, loans, bonds and carbon finance. The challenge in mobilising these instruments is to design them in a green way, while building capacity to engage in real co-operative and flexible arrangements with the private sector.

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A Markov Chain Monte Carlo Analysis of the Effect of Two-Rate Property Taxes on Construction

Cited by 34 publications

References 18 publications

Could Land-Only Taxation Save Local Government in Indiana?

Could Land-Only Taxation Save Local Government in Indiana?

Three-rate property taxation and housing construction

Financing Green Urban Infrastructure

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