An Analysis of Constrained Property Taxes in a Simple Optimal Tax Model

Saku Aura and Thomas Davidoff ()

CESifo Economic Studies, 2012, vol. 58, issue 3, 525-543

Abstract: We analyze an economy in which desirable land is inelastically supplied. A single government sets taxes on labor income, real property, and other commodities subject to the constraint that pure land rents and elastically supplied land development and structures are taxed at a common rate. The optimal property tax rate rises with the ratio of pure rents to structure and land development costs. Taxing non-housing commodities at a common rate is not optimal, even when their demand elasticities with respect to wages are identical. (JEL codes: H21, R13) Copyright The Author 2012. Published by Oxford University Press on behalf of Ifo Institute, Munich. All rights reserved. For permissions, please email: journals.permissions@oup.com, Oxford University Press.

Date: 2012
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