The Potential and Utility of Land Value Taxation – A Theoretical Framework and Simulation

• In Event: Property Taxation and Its Socioeconomic Ripple Effects

Abstract

Land taxation started early in the modern world; it was highly recommended in the late 19th century by Henry George as an efficient and powerful tax for economic development. The 20th century academic literature, however, left this tax aside for various reasons until most recently a small splash arose to re-examine the potential of this tax. This paper, based on classical political economy, develops a generic conceptual framework for the analysis of land taxation for application in the contemporary socio-economic contexts of urban economy with high dense population in metro centers.
The framework traces theories of the state, sovereign, and landownership, from lords and landed nobility in the Feudal System to Capitalism and market transactions of land, then to land under socialism and planned economy, contrasting ownership and taxation (freehold versus leasehold), thereby deriving a unified under land value tax. The paper then exploits the countrywide experiment of China since the early 2000s as a detailed case where the state owns all land and levies advance taxation of land use for the whole lease term (40-70 years) for revenue that is used as infrastructure investment. With actual data, set for 2015 as the base year, the paper runs a simulation of land value tax for the whole country. Simulation produces encouraging results that can induce higher economic growth, reduces other taxes, and helps maintain social stability.
This paper is among the first in a new wave of empirical explorations into revitalizing an ancient tax, with a generic theoretical framework for generalization. The paper also discusses the land tax as a governance tool for equity and socio-economic stability.

Authors

• Yilin Hou, Syracuse University

• Lei Shao, leishao@cufe.edu.cn