Fiscal and trade distorting effects of capital gains tax on land sales - empirical evidence from agricultural land market in Finland
AbstractCapital gains taxes are likely to distort the market and resource allocations through so called âlock-inâ effect, meaning discouraging trade transactions that trigger the tax payments. When it comes to agricultural land, the lock-in effect implies that the land ownership and active farming deviate from each other and, as a result, land tenancy increases. Increasing land tenancy and land tenure insecurity incur a significant social cost, because they deplete productivity of land by discouraging and delaying irreversible land improvements that would be necessary for maintaining land productivity. This study estimates the fiscal effects of reduction in capital gains taxes imposed on land sales and provides grounds for optimizing the tax scheme. The results suggest that certain temporary tax waiver programs could maintain the current tax revenues with less trade distorting effects on the land market. By simulating the land trade quantities conditional on alternative tax rates, the study gives information on how much a particular tax waiver program would trigger land sales. The results signal that tax waiver programs could shift the current structural development pattern of gradually increasing tenancy and land tenure insecurity to a pattern, in which the share of land ownership would be increased.
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Bibliographic InfoPaper provided by MTT Agrifood Research Finland in its series Discussion Papers with number 50040.
Date of creation: May 2009
Date of revision:
capital gains; taxes; land; trade; fiscal effects; Agricultural Finance; Financial Economics; Land Economics/Use;
Other versions of this item:
- Pietola, Kyosti & Myyra, Sami & Pouta, Eija, 2009. "Fiscal and trade distorting effects of capital gains tax on land sales - empirical evidence from agricultural land market in Finland," 2009 Conference, August 16-22, 2009, Beijing, China 50953, International Association of Agricultural Economists.
- NEP-ACC-2009-06-10 (Accounting & Auditing)
- NEP-AGR-2009-06-10 (Agricultural Economics)
- NEP-ALL-2009-06-10 (All new papers)
- NEP-PBE-2009-06-10 (Public Economics)
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