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> 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

> 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.

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.