Municipal Taxation and Social Exclusion: Examining the Spatial Implications of Taxing Land Instead of Capital

By Spinney, Jamie E. L.; Kanaroglou, Pavlos S. | Canadian Journal of Urban Research, Summer 2012 | Go to article overview

Municipal Taxation and Social Exclusion: Examining the Spatial Implications of Taxing Land Instead of Capital


Spinney, Jamie E. L., Kanaroglou, Pavlos S., Canadian Journal of Urban Research


Abstract

The inherent structural nature of the municipal property tax system results in negative social and economic consequences, which include inequities in municipal tax burdens that may perpetuate social exclusion within metropolitan areas. This research develops objective measures of social exclusion, using principal component analysis, in order to evaluate the relationships between the property tax and social exclusion. This research also evaluates whether these relationships can be mitigated under an alternative municipal tax system based solely on the value of land--land value taxation. We employed GIS to simulate a revenue-neutral shift in municipal tax burdens for residential land uses under the existing property tax system and a land value tax system for the City of Hamilton, Ontario. The results illustrate a clear spatial pattern in the distribution of shifting tax burdens and social exclusion. The results also indicate that both forms of municipal taxation disadvantage segments of the population that are at risk of social exclusion, but a land value tax system appears to provide some remedy for these vulnerable groups.

Keywords: property tax, site-value tax, social exclusion, spatial analysis, GIS

Resume

La nature structurelle inherente de la fiscalite fonciere municipale a des consquences sociales et economiques negatives, qui incluent des inegalites en matiere de poids de la fiscalite municipale risquant de perpetuer l'exclusion sociale dans les zones metropolitaines. Cette recherche presente des mesures objectives de l'exclusion sociale, en utilisant l'analyse en composantes principales, afin d'evaluer les relations entre l'imp6t foncier et l'exclusion sociale. Cette recherche evalue egalement a quel point ces relations peuvent etre attenuees avec un autre regime fiscal municipal base uniquement sur la valeur des terres--impot sur la valeur des terres. Nous avons utilise les SIG pour simuler un changement sans incidence sur les recettes fiscales municipales pour les terrains h vocation residentielle, dans le cadre du regime d'impot foncier existant et d'un systeme de taxe fonciere base sur la valeur des terrains pour la ville de Hamilton, en Ontario. Les resultats montrent une nette tendance spatiale dans la repartition du changement des charges fiscales et de l'exclusion sociale. Les resultats indiquent egalement que les deux formes d'impots municipaux desavantagent des segments de la population menacees d'exclusion sociale, mais un systeme de taxe fonciere basee sur la valeur des terrains semble offrir un rein+de pour ces groupes vulnerables.

Mots cles: impot foncier, impot base sur la valeur du terrain, exclusion sociale, analyse spatiale, SIG

Introduction

The ad valorem property tax is the major own-source revenue for Canadian municipalities, but "no tax in Canada has been more vilified" (Bird and Slack 1983: 60). In fact, the property tax has been labeled "incredibly bad" (Fisher 1996: 169) and "beyond all doubt one of the worst taxes known in the civilized world" (Bails 1974:192). Part of the problem, and unbeknownst to many, is that the property tax is really two taxes--one on the value of land and the other on the value of capital improvements, such as buildings and drainage. The current municipal property tax system in Ontario, and throughout most of North America, taxes the market value of the entire property, which means capital improvements are typically taxed more heavily than land. The distinction between land and capital is important, because they are different factors of production and their taxation, therefore, will have very different social and economic outcomes (Becker 1969; Levine 1983; Bourassa 1992; Yang and Means 1992; Peddle 1994).

On the other hand, a site-value tax system, or land value taxation, is an ad valorem tax based solely on the value of land, irrespective of buildings and other improvements. It is argued that site-value taxation is certainly supportable on purely fiscal grounds, but it is predominantly supported as a means of achieving social justice; it represents compensation to the rest of society for the privilege of monopolizing something the owner did nothing to create (Carter 1982; Tideman 1998). …

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