Local Government Tax and Land Use Policies in the United States: Understanding the Links

By Helen F. Ladd; Lincoln Institute of Land Policy | Go to book overview

3. Land use regulation as a fiscal tool

Helen F. Ladd

Local land use regulations were historically rationalized in terms of externalities. By separating different types of land use, a community could avoid undesirable spillover effects (in the form of factory smoke, for example) of one type of land use on another. However, land use regulations are also used — and perhaps increasingly so — for fiscal purposes, that is, to minimize the impacts of new development on the community's tax rate. Such use is particularly common in suburban communities in metropolitan areas. 1 By zoning out the types of development that would require more in public spending than they would generate in revenue and encouraging development that yields a fiscal 'profit', established residents try to keep their own tax burdens down.

The incentive for fiscal zoning emerges most clearly with the use of property taxes in a spatially fragmented governmental system. Local governments rely heavily on local property taxes to finance public services that are made available on an equal basis to all local residents and, for some services, to all business firms. The primary local service, education, provides direct benefits to households with children and no direct benefits to firms. According to the conventional wisdom, many types of business property generate a fiscal surplus because their property is sufficiently valuable that the property taxes they pay exceed the costs of the services they use. Among residents, households in high valued housing with few children tend to produce a surplus, while those in less expensive housing with many children produce a net fiscal deficit. To maximize their own welfare, established residents try to attract certain types of business firm and to zone out residential uses that produce a deficit. They typically achieve the latter goal by imposing minimum lot sizes or by excluding multi-family housing.

While planners tend to distinguish between land use regulations that limit specific types of land use, such as multi-family housing, and those that limit the overall growth of the community, economists tend to view the latter regulations simply as more stringent forms of traditional land use control. Like zoning, strategies to limit growth are based on the police power of the community and are typically justified as promoting the health, safety and general welfare of local residents by controlling the timing and sequencing of

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Local Government Tax and Land Use Policies in the United States: Understanding the Links
Table of contents

Table of contents

  • Title Page iii
  • Contents v
  • Figures vii
  • Tables viii
  • List of Contributors x
  • Acknowledgements xiii
  • Lincoln Institute of Land Policy xiv
  • 1. Introduction 1
  • Notes 21
  • References 21
  • Part I - Interactions Between Tax and Land Policies 23
  • 2. Theoretical Controversies: Land and Property Taxation 25
  • Notes 38
  • References 39
  • Notes 48
  • References 48
  • References 53
  • 3. Land Use Regulation as a Fiscal Tool 55
  • Notes 72
  • References 72
  • Notes 80
  • References 81
  • 4. Effects of Taxes on Economic Activity 82
  • Notes 99
  • References 99
  • Notes 107
  • Notes 115
  • 5. Tax Policies to Promote Economic Development 116
  • Notes 128
  • References 129
  • Part II - Tax Policy as a Land Use Tool 131
  • 6. the Pittsburgh Experience with Land- Value Taxation 133
  • Notes 141
  • References 142
  • 7. Property Tax Treatment of Farmland: Does Tax Relief Delay Land Development? 144
  • Notes 157
  • References 159
  • 8. Incentives, Firm Location Decisions and Regional Economic Performance 168
  • Notes 180
  • References 180
  • 9. Tax Increment Financing as a Tool of Redevelopment 182
  • Notes 196
  • References 197
  • Part III - Fiscal and Distributional Impacts 199
  • 10. Fiscal Impacts of Business Development in the Chicago Suburbs 201
  • Notes 212
  • References 214
  • Appendix 215
  • 11. Who Pays Development Fees? 218
  • Notes 231
  • References 233
  • 12. Regional Tax Base Sharing: the Twin Cities Experience 234
  • Notes 251
  • References 253
  • Index 255
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