The Incidence and Efficiency of Land Value Taxation

• In Event: In Honor of Ronald C. Fisher and His Landmark Text on State and Local Public Finance: Incidence and equity considerations

Abstract

Land value taxes are often seen as particularly desirable because the fixed supply of land implies no efficiency loss from taxation, with the entire tax burden falling on current landowners. We study the incidence and efficiency of land taxes using a unique quasi-experiment that generated persistent variation in land tax rates across Danish municipalities. In contrast to the predictions of standard, neoclassical models, we estimate a precise zero effect of land taxes on residential home prices. The precision of our estimates allows us to confidently rule out full capitalization of taxes into home prices using leading estimates of housing discount rates. Our results imply that the burden of land taxes is shared with tenants and future purchasers. We also estimate null effects of land taxes on measures of housing development, mobility, and homeownership, though we do find that older homeowners sort away from high tax areas. Our results are consistent with limited efficiency costs of land value taxation but imply that land taxes are more regressive in our setting than predicted by standard models.

Authors

• Caleb Wroblewski, caleb.wroblewski@gmail.com

• Anders Yding, University of California, Berkeley