Competitive jurisdictions, congestion, and the Henry George Theorem. When should property be taxed instead of land?

Research output: Contribution to journalArticlepeer-review

51 Scopus citations

Abstract

Despite the apparent gains to moving from property to land taxation, nearly all local taxing authorities in the United States tax land and capital equally. If, as many studies suggest, the removal of the tax on housing capital would significantly increase welfare, why haven't local governments done so? I show that if the government service is a publicly-provided private good, taxing land and capital equally will maximize the locality's land rents and, consequently, its residents' welfare. As long as the government service has some degree of congestibility, a positive tax on capital is always optimal. While a uniform move from property to land taxation in all jurisdiction will make all jurisdictions better off, this does not imply that taxing land at a higher rate than capital in a single jurisdiction is optimal for that jurisdiction. The tax on housing capital served as a proxy for a tax to cover the increased cost of congestion incurred by having another household enter the locality.

Original languageEnglish
Pages (from-to)351-370
Number of pages20
JournalRegional Science and Urban Economics
Volume21
Issue number3
DOIs
StatePublished - Nov 1991

Bibliographical note

Funding Information:
*I gratefully acknowledge financial support from the National Science Foundation (Grant No. RII-8610671) and the Commonwealth of Kentucky through the EPSCoR Program. I wish to thank participants of the University of Kentucky Applied Economics Workshop, Jan Brueckner, an anonymous referee, and the editors of this issue for comments that have greatly improved this paper. ‘An excellent summary of the recent discussion on the neutrality of land taxation is found in Wildasin (1986, pp. 115-120). See Henry George (1914) for George’s contributions to this issue.

ASJC Scopus subject areas

  • Economics and Econometrics
  • Urban Studies

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