Abstract
In this paper we use a dynamic three sector model to examine the neutrality and welfare effects of land income taxes. We find that (1) taxes that are neutral in long run equilibrium need not be neutral in the short run; (2) short run neutrality depends upon the tax treatment of development costs and losses; and (3) many of the neutrality results hold under both static and rational expectations assumptions. We also find that, even without externality assumptions, nonneutrality in the short run does not necessarily entail a welfare cost and may be welfare-enhancing when agents have less-than-perfect foresight.
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