The Property Tax as a Tax on Value: Deadweight Loss

Authors: Arnott, Richard¹; Petrova, Petia²

Source: International Tax and Public Finance, Volume 13, Numbers 2-3, May 2006 , pp. 241-266(26)

Publisher: Springer

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Abstract:

Consider an atomistic developer who decides when and at what density to develop his land, under a property value tax system characterized by three time-invariant tax rates: τ_V, the tax rate on pre-development land value; τ_S, the tax rate on post-development residual site value; and τ_K, the tax rate on structure value. Arnott (2005) identified the subset of property value tax systems that are neutral. This paper investigates the relative efficiency of four idealized, non-neutral property value tax systems [(i) “Canadian'' property tax system: τ_V = 0, τ _S = τ_K; (ii) simple property tax system: τ_V = τ _S = τ_K; (iii) residual site value tax system: τ_K = 0,τ _V = τ_S; (iv) two-rate property tax system: τ_V = τ _S > τ_K > 0] under the assumption of a constant rental growth rate.

Keywords: property taxation; site value taxation; land taxation; deadweight loss

Document Type: Research article

DOI: http://dx.doi.org/10.1007/s10797-006-4938-6

Affiliations: 1: Email: richard.arnott@bc.edu 2: Email: ppetrova@wcrinet.org

Publication date: 2006-05-01