The Differential Incidence of an Urban Land Tax Depends on the Travel Intensities of Substitutes for Land

Abstract

There is an extensive literature on the incidence of the real property tax. In 1990 Pasha considered the incidence of an exclusive tax on urban land rents. He concluded that such a tax would initially impact on consumers of housing, but that the changes in spending induced by the tax would cause its burden to be shared between consumers and landowners according to the elasticity of substitution between land and other market goods, and the location of the land with respect to the urban margin. This note shows that, in order to impose any burden on consumers, the urban land tax needs to be supplemented by planning controls to prevent consumers on the urban margin shifting to the rural area in order to escape the tax. It also shows that the incidence of the tax between consumers and owners of intra-marginal land depends on the 'travel intensity' of the goods which are favoured by its substitution effects, and that these need to be specified.