Equity and Efficiency Effects of Land Value Taxation

Gregor Schwerhoff, Ottmar Edenhofer and Marc Fleurbaey

No 2022/263, IMF Working Papers from International Monetary Fund

Abstract: It is a well-known result in economics that land value taxation is efficient since it does not distort the supply of the tax base. Considering only efficiency, land value should thus be fully taxed. Using optimal taxation theory with heterogeneous households, we show that it may be optimal not to tax land value fully for distributional reasons. The decisive variable is the covariance of land value held by households and their social welfare weight. Empirical data from the US and France, however, indicates that ownership of land value (in absolute terms) is negatively correlated to the social welfare weight. Middle income households would pay relatively more land value taxes than high income households, but less in absolute terms. With reasonable revenue recycling, land value taxation would thus reduce the net tax burden of low and middle income earners, because they would benefit more from the recycling than they pay in additional taxes.

Keywords: land value taxation; inequality; optimal taxation; net tax burden; tax land value; income earner; land rent tax; Land tax; Income; Labor taxes; Housing; Labor supply (search for similar items in EconPapers)
Pages: 29
Date: 2022-12-16
New Economics Papers: this item is included in nep-acc, nep-agr, nep-pbe and nep-pub
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