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Who it's shifted on and how it's passed on depends on the kind of tax. If you impose a tax on buildings, that gets shifted onto tenants. If its a tax on land (

Who it's shifted on and how it's passed on depends on the kind of tax. If you impose a tax on buildings, that gets shifted onto tenants. If its a tax on land (ie, the rental value of the location), the landlord has to eat it and it gets fully capitalized into the price, which means the landlord can't pass that on to the tenants and it actually brings the price of the land and rents down. There's a long string of empirical studies that back up this finding, the latest being this one out of Denmark: https://www.zbw.eu/econis-archiv/bitstream/11159/1082/1/arbejdspapir_land_tax.pdf https://www.zbw.eu/econis-archiv/bitstream/11159/1082/1/arbe...

jedimastert 5y ago
> If you impose a tax on buildings, that gets shifted onto tenants. If its a tax on land (ie, the rental value of the location), the landlord has to eat i I'm not quite sure I understand the difference here, but I may be misunderstanding why a tax on the buildings and a tax on the land is different? Are you saying a tax based on rental prices? Otherwise I would assume any cost to the landlord would eventually get passed on to the tenet, being the source of revenue.
- larsiusprime 5y ago
  This is a good question! So a standard property tax is a tax on the value of the building and the tax on the land. The landlord has to pay the tax whether they're renting it out or not, but what kind of tax you're assessing affects how much they can charge in rent to their tenant. When you tax something, the cost typically gets "passed on" because you are changing the marginal profitability of that thing, and this causes the supply to decrease, which drives up the price. We can make more buildings. But we can't make more land (locations). So theory has long held that a tax on the value of land (also known as a site value tax) cannot be passed on to tenants, because it's not like someone says "well the cost of holding land went up this week Charlie, better make slightly less land this quarter." Though they can and absolutely do in fact do that with regards to, say, housing construction (and gasoline, and cigarettes, and sirloin steaks, and plush dolls, and anything else you might want to tax). And this is exactly the empirical effect that the referenced research paper (and many more like it) find in practice. If you assign a split-rate property tax which taxes two things: land, and improvements (buildings, essentially) at different rates, and you have a natural experiment where you randomly vary the tax rate on the improvements and the tax rate on the land, you will find that the price of the property goes down proportionately to the tax rate on land (full capitalization of land taxes), but that doesn't happen with the portion of the tax rate that falls on buildings. See this for more on the underlying theory: https://astralcodexten.substack.com/p/your-book-review-progress-and-poverty https://astralcodexten.substack.com/p/your-book-review-progr... If you want more sources on the empirical findings I'm happy to provide that to.
  - splitstud 5y ago
    Taxes are costs, and costs are fungible.
    - gruez 5y ago
      I think the point is that the tax is structured in such a way that doesn't disincentivize housing stock. Under a land value tax scheme, a landlord is incentivized to produce as many housing units for a given amount of land as possible, because it allows him to spread out the same tax across more tenants. In contrast, a fixed percentage (eg. 10% tax on rent) doesn't have this feature.
nradov 5y ago
That makes no sense. Landlords are going to charge the maximum rent that the market will bear, regardless of how much they pay in taxes for the land and building. And if they can't make a profit at that rate then they'll eventually sell the property, or develop it for a more profitable use.
- larsiusprime 5y ago
  All I can say is read the empirical results! It's what happens in actual reality in plenty of studies I can cite. Landlords charge the maximum rent that the market will bear, but the land taxes shift what the market will bear, because you can't make more land, and changing how much we make of something is how producers are able to pass on taxes to consumers. > If they can't make a profit at that rate then they'll eventually sell the property, or develop it for a more profitable use. This is exactly the political purpose of land value taxes, by the way! Under a sufficiently high land value tax, the only way to make land more profitable is to IMPROVE it by building useful stuff on it. So if the improvements go untaxed (you don't get penalized for building stuff), but the location is taxed, you incentivize people to build stuff lots of people need, such as dense housing rather than parking lots and single family homes.
  - blitzar 5y ago
    > the land taxes shift what the market will bear Only because the substitution good to rent is purchase which would also be subject to the same taxation. The only reason rent and property value are correlated is that they are substitution goods, but the linkage is not fixed. Simple examples would be say student towns, not every student is going to be able to chose between rent and purchae etc.

jedimastert 5y ago

> If you impose a tax on buildings, that gets shifted onto tenants. If its a tax on land (ie, the rental value of the location), the landlord has to eat i I'm not quite sure I understand the difference here, but I may be misunderstanding why a tax on the buildings and a tax on the land is different? Are you saying a tax based on rental prices? Otherwise I would assume any cost to the landlord would eventually get passed on to the tenet, being the source of revenue.

larsiusprime 5y ago
This is a good question! So a standard property tax is a tax on the value of the building and the tax on the land. The landlord has to pay the tax whether they're renting it out or not, but what kind of tax you're assessing affects how much they can charge in rent to their tenant. When you tax something, the cost typically gets "passed on" because you are changing the marginal profitability of that thing, and this causes the supply to decrease, which drives up the price. We can make more buildings. But we can't make more land (locations). So theory has long held that a tax on the value of land (also known as a site value tax) cannot be passed on to tenants, because it's not like someone says "well the cost of holding land went up this week Charlie, better make slightly less land this quarter." Though they can and absolutely do in fact do that with regards to, say, housing construction (and gasoline, and cigarettes, and sirloin steaks, and plush dolls, and anything else you might want to tax). And this is exactly the empirical effect that the referenced research paper (and many more like it) find in practice. If you assign a split-rate property tax which taxes two things: land, and improvements (buildings, essentially) at different rates, and you have a natural experiment where you randomly vary the tax rate on the improvements and the tax rate on the land, you will find that the price of the property goes down proportionately to the tax rate on land (full capitalization of land taxes), but that doesn't happen with the portion of the tax rate that falls on buildings. See this for more on the underlying theory: https://astralcodexten.substack.com/p/your-book-review-progress-and-poverty https://astralcodexten.substack.com/p/your-book-review-progr... If you want more sources on the empirical findings I'm happy to provide that to.
- splitstud 5y ago
  Taxes are costs, and costs are fungible.
  - gruez 5y ago
    I think the point is that the tax is structured in such a way that doesn't disincentivize housing stock. Under a land value tax scheme, a landlord is incentivized to produce as many housing units for a given amount of land as possible, because it allows him to spread out the same tax across more tenants. In contrast, a fixed percentage (eg. 10% tax on rent) doesn't have this feature.

nradov 5y ago

That makes no sense. Landlords are going to charge the maximum rent that the market will bear, regardless of how much they pay in taxes for the land and building. And if they can't make a profit at that rate then they'll eventually sell the property, or develop it for a more profitable use.

larsiusprime 5y ago
All I can say is read the empirical results! It's what happens in actual reality in plenty of studies I can cite. Landlords charge the maximum rent that the market will bear, but the land taxes shift what the market will bear, because you can't make more land, and changing how much we make of something is how producers are able to pass on taxes to consumers. > If they can't make a profit at that rate then they'll eventually sell the property, or develop it for a more profitable use. This is exactly the political purpose of land value taxes, by the way! Under a sufficiently high land value tax, the only way to make land more profitable is to IMPROVE it by building useful stuff on it. So if the improvements go untaxed (you don't get penalized for building stuff), but the location is taxed, you incentivize people to build stuff lots of people need, such as dense housing rather than parking lots and single family homes.
- blitzar 5y ago
  > the land taxes shift what the market will bear Only because the substitution good to rent is purchase which would also be subject to the same taxation. The only reason rent and property value are correlated is that they are substitution goods, but the linkage is not fixed. Simple examples would be say student towns, not every student is going to be able to chose between rent and purchae etc.