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Three-rate property taxation and housing construction

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  • Lyytikäinen, Teemu

Abstract

This paper examines the effect of property taxation on housing construction. In 2001, Finnish municipalities were allowed to levy an extra property tax on undeveloped land zoned for housing. Municipalities that adopted the new tax instrument have a three-rate tax property tax system with different tax rates on land before development, land after development and buildings. The remaining municipalities have a two-rate system with a uniform land tax and a building tax. A theoretical model of decisions by landowners suggests that the pre-development land tax ought to lead to faster development, but also the density of development may be affected. In the two-rate system land tax is neutral. The empirical results suggest that landowners respond to the tax incentives. Municipalities that adopted the three-rate property tax system saw an increase in single-family housing starts of roughly 12 percent.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Urban Economics.

Volume (Year): 65 (2009)
Issue (Month): 3 (May)
Pages: 305-313

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Handle: RePEc:eee:juecon:v:65:y:2009:i:3:p:305-313

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Web page: http://www.elsevier.com/locate/inca/622905

Related research

Keywords: Property taxation Land taxation Land development Housing construction Count data;

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References

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Cited by:
  1. Teemu Lyytikäinen, 2011. "Tax competition among local governments: evidence from a property tax reform in Finland," Working Papers 2011/35, Institut d'Economia de Barcelona (IEB).

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