land-value taxation in Pittsburgh was (roughly) neutral. The critics of land- value taxation have suggested that the Pittsburgh tax reform was unimportant because it had little effect on development. The point here is that if land taxation is neutral, we would expect it to have no effects on any decisions. This is its very appeal: it does not distort economic choices! Thus the responses of those interviewed are fully consistent with the traditional view of the neutrality of land taxation. Land taxation should not, and apparently did not, in itself hasten development.
Does this mean that Pittsburgh's decision to increase the tax on land was irrelevant? The answer, we would argue strongly, is 'no'. What would have happened if the city had not decided to tax land more heavily? Pittsburgh was under severe fiscal pressure in the late 1970s, and some type of tax increase was virtually unavoidable. Had an increase in land-value taxation not been introduced, city officials would have turned to another form of taxation: perhaps higher taxes on structures, or (more likely according to contemporary reports) the introduction of a significant increase in the city's wage tax. Both theory and empirical evidence strongly suggest that such tax increases would have had a serious negative effect on the Pittsburgh economy. Bartik's ( 1991) summary, for example, shows that intrametroplitan area firm decisions are particularly sensitive to taxes. Moreover, existing evidence suggests that a sizeable wage tax can have a major detrimental impact on the local economy. Two econometric studies of the wage tax in Philadelphia find that the tax has resulted in large job losses in the city. Ronald Grieson ( 1980) estimates that a 1 percentage point increase in the wage tax in Philadelphia in 1976 led to a 10-15 per cent loss of employment in the city by 1980. A later study by Robert Inman ( 1992) turns up similar findings: Inman estimates that a potential increase in the Philadelphia wage tax from about 5 per cent to 6 per cent would result in a loss of over 80 000 jobs (or of 12.7 per cent from existing employment levels). 10
It is against the backdrop of such alternatives that the tax on land values needs to be considered. The role of land-value taxation in Pittsburgh should be understood in a setting of differential taxation. The relevant issue here is how the effects of the land-value tax compared with those of the available alternative sources of tax revenues. It appears that a land tax did not cause a building boom in Pittsburgh, but that it did allow the city government to avoid policies that might have undercut that boom.
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Publication information: Book title: Local Government Tax and Land Use Policies in the United States:Understanding the Links. Contributors: Helen F. Ladd - Author, Lincoln Institute of Land Policy - OrganizationName. Publisher: Edward Elgar. Place of publication: Cheltenham,UK. Publication year: 1998. Page number: 141.