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Optimal Commodity Taxation When Land and Structures Must Be Taxed at the Same Rate

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Abstract

We show that the optimal property tax rate rises with the ratio of land rents to structure and land development costs. Californias high ratio of income to property tax revenue and the distribution of Federal housing subsidies thus appear geographically misplaced. Proportional taxation of non-housing commodities is not optimal, even when elasticities with respect to wages are identical. Absent externalities, the desirability of transportation taxes andanti-sprawl growth controls hinge on the relative importance of time versus money in commuting costs.

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File URL: http://economics.missouri.edu/working-papers/2005/wp0505_aura.pdf
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Bibliographic Info

Paper provided by Department of Economics, University of Missouri in its series Working Papers with number 0505.

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Length: 32 pgs.
Date of creation: 19 Jul 2005
Date of revision:
Handle: RePEc:umc:wpaper:0505

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Keywords: Property Taxes; Henry George Theorem;

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  1. Helsley, Robert W. & Sullivan, Arthur M., 1991. "Urban subcenter formation," Regional Science and Urban Economics, Elsevier, vol. 21(2), pages 255-275, July.
  2. Morris A. Davis & Jonathan Heathcote, 2004. "The price and quantity of residential land in the United States," Finance and Economics Discussion Series 2004-37, Board of Governors of the Federal Reserve System (U.S.).
  3. Lawrence H. Goulder & Roberton C. Williams III, 2003. "The Substantial Bias from Ignoring General Equilibrium Effects in Estimating Excess Burden, and a Practical Solution," Journal of Political Economy, University of Chicago Press, vol. 111(4), pages 898-927, August.
  4. Sven Rady, 2002. "Homeownership: Low household mobility, volatile housing prices, high income dispersion," FMG Discussion Papers dp432, Financial Markets Group.
  5. Harvey S. Rosen, 1983. "Housing Subsidies: Effects on Housing Decisions, Efficiency, and Equity," NBER Working Papers 1161, National Bureau of Economic Research, Inc.
  6. James Berkovec & Don Fullerton, 1993. "A General Equilibrium Model of Housing, Taxes, and Portfolio Choice," NBER Working Papers 3505, National Bureau of Economic Research, Inc.
  7. Martin Gervais, 1998. "Housing Taxation and Capital Accumulation," UWO Department of Economics Working Papers 9807, University of Western Ontario, Department of Economics.
  8. Alan J. Auerbach & James R. Hines Jr., 2001. "Perfect Taxation with Imperfect Competition," NBER Working Papers 8138, National Bureau of Economic Research, Inc.
  9. repec:rus:hseeco:126976 is not listed on IDEAS
  10. Thorsnes, Paul, 1997. "Consistent Estimates of the Elasticity of Substitution between Land and Non-Land Inputs in the Production of Housing," Journal of Urban Economics, Elsevier, vol. 42(1), pages 98-108, July.
  11. Munk, Knud Jorgen, 1978. " Optimal Taxation and Pure Profit," Scandinavian Journal of Economics, Wiley Blackwell, vol. 80(1), pages 1-19.
  12. Dennis Epple & Holger Sieg, 1999. "Estimating Equilibrium Models of Local Jurisdictions," Journal of Political Economy, University of Chicago Press, vol. 107(4), pages 645-681, August.
  13. Robert E. Lucas & Esteban Rossi-Hansberg, 2002. "On the Internal Structure of Cities," Econometrica, Econometric Society, vol. 70(4), pages 1445-1476, July.
  14. Brueckner, Jan K & Kim, Hyun-A, 2003. "Urban Sprawl and the Property Tax," International Tax and Public Finance, Springer, vol. 10(1), pages 5-23, January.
  15. Joseph Gyourko & Todd Sinai, 2003. "The Spatial Distribution of Housing-Related Ordinary Income Tax Benefits," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 31(4), pages 527-575, December.
  16. Rady, Sven & Ortalo-Magné, François, 2002. "Homeownership," Discussion Papers in Economics 28, University of Munich, Department of Economics.
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Cited by:
  1. Konrad, Kai A. & Skaperdas, Stergios, 2012. "The market for protection and the origin of the state," Munich Reprints in Economics 13961, University of Munich, Department of Economics.

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