Abstract

Most Australian state and territory governments levy land tax on unimproved land value. The principal place of residence (PPR) is however exempt. In this article, we study the allocative efficiency impact of this exemption in one Australian state (New South Wales). Our simulation-based analysis utilises a multi-regional computable general equilibrium (CGE) model, which is calibrated using a discrete choice model of housing tenure choice. Using excess burden and economic damage measures, we illustrate how the PPR exemption is responsible for the majority of the efficiency differences between a broad-based land tax, and NSW state land tax.

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