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

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.


NOTES
1.
See Tideman ( 1994) for an excellent discussion of the history of thought on land taxation.
2.
There have been at least three earlier studies of the effects of land-value taxation in

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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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