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

Abstract

We show that the optimal property tax rate rises with the ratio of land rents tostructure and land development costs. Californias high ratio of income to property taxrevenue and the distribution of Federal housing subsidies thus appear geographicallymisplaced. Proportional taxation of non-housing commodities is not optimal, evenwhen elasticities with respect to wages are identical. Absent externalities, the desirabilityof transportation taxes and anti-sprawl growth controls hinge on the relativeimportance of time versus money in commuting costs.

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File URL: https://economics.missouri.edu/working-papers/2005/wp0505_aura.pdf
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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
Handle: RePEc:umc:wpaper:0505
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Keywords: Property Taxes; Henry George Theorem;

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Find related papers by JEL classification:
  • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
  • R13 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - General Equilibrium and Welfare Economic Analysis of Regional Economies

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  1. W. J. Corlett & D. C. Hague, 1953. "Complementarity and the Excess Burden of Taxation," Review of Economic Studies, Oxford University Press, vol. 21(1), pages 21-30.
  2. Rosen, Harvey S., 1985. "Housing subsidies: Effects on housing decisions, efficiency, and equity," Handbook of Public Economics,in: A. J. Auerbach & M. Feldstein (ed.), Handbook of Public Economics, edition 1, volume 1, chapter 7, pages 375-420 Elsevier.
  3. Gervais, Martin, 2002. "Housing taxation and capital accumulation," Journal of Monetary Economics, Elsevier, vol. 49(7), pages 1461-1489, October.
  4. Helsley, Robert W. & Sullivan, Arthur M., 1991. "Urban subcenter formation," Regional Science and Urban Economics, Elsevier, vol. 21(2), pages 255-275, July.
  5. 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.
  6. Davis, Morris A. & Heathcote, Jonathan, 2007. "The price and quantity of residential land in the United States," Journal of Monetary Economics, Elsevier, vol. 54(8), pages 2595-2620, November.
  7. Alan J. Auerbach & James R. Hines Jr., 2001. "Perfect Taxation with Imperfect Competition," NBER Working Papers 8138, National Bureau of Economic Research, Inc.
  8. 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.
  9. Brueckner, Jan K & Kim, Hyun-A, 2003. "Urban Sprawl and the Property Tax," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 10(1), pages 5-23, January.
  10. Robert E. Lucas & Esteban Rossi-Hansberg, 2002. "On the Internal Structure of Cities," Econometrica, Econometric Society, vol. 70(4), pages 1445-1476, July.
  11. Munk, Knud Jorgen, 1978. " Optimal Taxation and Pure Profit," Scandinavian Journal of Economics, Wiley Blackwell, vol. 80(1), pages 1-19.
  12. Sven Rady, 2002. "Homeownership: Low household mobility, volatile housing prices, high income dispersion," FMG Discussion Papers dp432, Financial Markets Group.
  13. Berkovec, James & Fullerton, Don, 1992. "A General Equilibrium Model of Housing, Taxes, and Portfolio Choice," Journal of Political Economy, University of Chicago Press, vol. 100(2), pages 390-429, April.
  14. repec:rus:hseeco:126976 is not listed on IDEAS
  15. 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.
  16. 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.
  17. 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. Kai Konrad & Stergios Skaperdas, 2012. "The market for protection and the origin of the state," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 50(2), pages 417-443, June.

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