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

6. The Pittsburgh experience with land- value taxation*

Wallace E. Oates and Robert M. Schwab


INTRODUCTION

Economists have had a long-standing interest in land taxation. 1 The physiocrats, Adam Smith, David Ricardo, James Mill, John Stuart Mill and, most notably, Henry George, all wrote extensively on the subject. They disagreed on many issues, but they were unanimous on one point: since the supply of land was perfectly inelastic, land taxes would be borne entirely by landowners and would not distort economic decisions. Despite this interest, our experience with land-value taxation is actually very limited. In the United States, virtually no governments use a pure land tax and only a small handful rely on a split-rate system where land is taxed more heavily than structures. Consequently, we have little idea about the actual consequences of a land tax.

We have tried to provide some evidence on this point by looking at a recent 'natural experiment' in Pittsburgh. In 1979 and 1980, Pittsburgh restructured its property tax system so that land was taxed at more than five times the rate on structures. The facts of the Pittsburgh case are both clear and dramatic. Pittsburgh enjoyed a boom in non-residential construction following the change in tax policy. Annual construction was on average 70 per cent higher in Pittsburgh during the 1980s than in the 1960s and 1970s. In sharp contrast, development fell sharply in most comparable, older, Rust Belt central cities. The interpretation of these facts, however, is far from clear. Some have argued that the graded land tax was the key factor behind Pittsburgh's build

____________________
*
Both authors are members of the Department of Economics, University of Maryland; Oates is also a University Fellow at Resources for the Future. For research assistance, we are grateful to James Heil, Jonathan Lewis, Dan Mussatti and especially to Janet McCubbin. For their help in obtaining required data, we thank Dina Silva-Decker at the Dun and Bradstreet Corporation, Ellen Ku of BOMA International and Stan Montgomery at the US Bureau of the Census. We also appreciate the help and patience of Dr Charles Blocksidge, the County Assessor of Allegheny County, Mark Gibbons, Chief Accounting Officer of the City Controller in Pittsburgh, and Michael Weir, Senior Research Associate of the Pennsylvania Economy League. Finally, we want to thank the Lincoln Institute of Land Policy for their extended support of this study.

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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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