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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.

Suggested Citation

  • Lyytikäinen, Teemu, 2009. "Three-rate property taxation and housing construction," Journal of Urban Economics, Elsevier, vol. 65(3), pages 305-313, May.
  • Handle: RePEc:eee:juecon:v:65:y:2009:i:3:p:305-313
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    Cited by:

    1. Bimonte, Salvatore & Stabile, Arsenio, 2015. "Local taxation and urban development. Testing for the side-effects of the Italian property tax," Ecological Economics, Elsevier, vol. 120(C), pages 100-107.
    2. Lyytikäinen, Teemu, 2012. "Tax competition among local governments: Evidence from a property tax reform in Finland," Journal of Public Economics, Elsevier, pages 584-595.
    3. Hansjörg Blöchliger & José Maria Pinero Campos, 2011. "Tax Competition Between Sub-Central Governments," OECD Economics Department Working Papers 872, OECD Publishing.
    4. Seong-Hoon Cho & Seung Gyu Kim & Dayton M. Lambert & Roland K. Roberts, 2013. "Impact of a Two-Rate Property Tax on Residential Densities," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 95(3), pages 685-704.

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