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Taxes Versus Regulation: The Welfare Impacts of Policies for Containing Sprawl

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Our central concern in this paper is to examine some alternative policies for physically containing the growth of urban areas. We undertake a microsimulation to provide a comparison between land use planning policies that enforce an urban growth boundary and policies that limit development at the periphery using taxes. We parameterise our microsimulation using the structure of demand and policy implemented in a rapidly growing city in the south of England. We make no judgment as to the optimality or otherwise of the existing degree of constraint: we take that as datum and analyse only the welfare costs, distributional impacts and effects on urban densities of alternative ways of achieving the currently observed degree of constraint. The methodology we deploy to address these issues could be turned to a wide range of other urban modeling purposes. It has the advantage of being clearly founded in microeconomic theory and applies observed behavioural relationships, estimated from the relevant economic data. We find that the use of a tax on land could produce the same limitation on growth as existing regulatory policies but provide higher equilibrium welfare levels. We find that the use of a tax on transport costs, however, while capable of producing a compact urban form, would not raise welfare when compared with regulatory approaches.

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Paper provided by Department of Economics, Williams College in its series Department of Economics Working Papers with number 2002-04.

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Date of creation: Jun 2002
Publication status: published in The Property Tax, Land Use and Land Use Regulation, edited by Dick Netzer, Edward Elgar Publishing, Cheltenham (2003).
Handle: RePEc:wil:wileco:2002-04
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  1. Cheshire, Paul & Sheppard, Stephen, 1998. "Estimating the Demand for Housing, Land, and Neighbourhood Characteristics," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 60(3), pages 357-382, August.
  2. Cheshire, Paul & Sheppard, Stephen, 1995. "On the Price of Land and the Value of Amenities," Economica, London School of Economics and Political Science, vol. 62(246), pages 247-267, May.
  3. Paul Cheshire & Stephen Sheppard, 1997. "Welfare Economics of Land Use Regulation," Urban/Regional 9702001, EconWPA.
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