Journal Article

An Analysis of Constrained Property Taxes in a Simple Optimal Tax Model

Saku Aura and Thomas Davidoff

in CESifo Economic Studies

Volume 58, issue 3, pages 525-543
Published in print September 2012 | ISSN: 1610-241X
Published online July 2012 | e-ISSN: 1612-7501 | DOI: http://dx.doi.org/10.1093/cesifo/ifs030
An Analysis of Constrained Property Taxes in a Simple Optimal Tax Model

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We analyze an economy in which desirable land is inelastically supplied. A single government sets taxes on labor income, real property, and other commodities subject to the constraint that pure land rents and elastically supplied land development and structures are taxed at a common rate. The optimal property tax rate rises with the ratio of pure rents to structure and land development costs. Taxing non-housing commodities at a common rate is not optimal, even when their demand elasticities with respect to wages are identical. (JEL codes: H21, R13)

Keywords: property taxes; land taxes; commodity taxes

Journal Article.  6825 words.  Illustrated.

Subjects: Public Economics

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