“Ask an economist about which are the most efficient kinds of taxes, and property taxes will be high up on the list. They distort behaviour less, and are more growth friendly, than taxes on income, employment or even consumption.”
The mentioned tax should more properly be called “land value tax” instead of “property tax”.
However, the article
An unexploited resource (click here),
published in The Economist (Jun 27, 2013) tries to give some answers. Considering the discussion about the property tax reform in Germany and other, this article is still valid.
The meaning of land as a factor of production has been disguised successfully by neoclassical economics for more than one century. Meanwhile, the concern over land has come roaring back. The issue is not overall scarcity, but scarcity in specific places—the cities responsible for a disproportionate amount of the world’s output.
The good news is that the high price of land in these places is
- in part an unavoidable concomitant of success;
- and largely an “artificial” problem, caused by land use regulations.
The bad news is that
- such land use regulations are necessary in order to internalize external costs of land use;
- the problem is a hardly soluble one. One estimate suggests that since the 1960s such distortions have reduced America’s GDP by more than 13%.
The topic is illustrated very well in the article of The Economist, published at April 4th:
The paradox of soil (please click for download)
The article also refers to the concept of Henry George as a possible solution.
The cover story of The Economist (April 4th, 2015) quotes Mark Twain: “Buy land, they’re not making it any more.”The text deals with a hot stuff:
“Space and the City” (click here for download)
The article describes why poor land use in the world’s greatest cities carries a huge cost. It is written in an excellent, understandable way. Among others, the impact of zoning on land prices is discussed and land value taxation is promoted.