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Land value tax
A land value tax (LVT) is a levy on the value of land without regard to buildings, personal property and other improvements upon it. Some economists favor LVT, arguing it does not cause economic inefficiency, and helps reduce economic inequality. A land value tax is a progressive tax, in that the tax burden falls on land owners, because land ownership is correlated with wealth and income. The land value tax has been referred to as "the perfect tax" and the economic efficiency of a land value tax has been accepted since the eighteenth century. Economists since Adam Smith and David Ricardo have advocated this tax because it does not hurt economic activity, and encourages development without subsidies.
LVT is associated with Henry George, whose ideology became known as Georgism. George argued that taxing the land value is the most logical source of public revenue because the supply of land is fixed and because public infrastructure improvements would be reflected in (and thus paid for by) increased land values.
A low-rate land value tax is currently implemented throughout Denmark, Estonia, Lithuania, Russia, Singapore, and Taiwan; it has also been applied to lesser extents in parts of Australia, Germany, Mexico (Mexicali), and the United States (e.g., Pennsylvania).
It is also known as a location value tax (LVT), a point valuation tax, a site valuation tax, split rate tax, or a site-value rating.
Most taxes distort economic decisions and discourage beneficial economic activity. For example, property taxes discourage construction, maintenance, and repair because taxes increase with improvements. LVT is not based on how land is used. Because the supply of land is essentially fixed, land rents depend on what tenants are prepared to pay, rather than on landlord expenses. Thus, if landlords passed LVT on to tenants, they might move or rent smaller spaces before absorbing increased rent.
The land's occupants benefit from improvements surrounding a site. Such improvements shift tenants' aggregate demand curve to the right (they will pay more). Landlords benefit from price competition among tenants; the only direct effect of LVT in this case is to reduce the amount of social benefit that is privately captured as land price by titleholders.
LVT is said to be justified for economic reasons because it does not deter production, distort markets, or otherwise create deadweight loss. Land value tax can even have negative deadweight loss (social benefits), particularly when land use improves. Economist William Vickrey believed that:
"removing almost all business taxes, including property taxes on improvements, excepting only taxes reflecting the marginal social cost of public services rendered to specific activities, and replacing them with taxes on site values, would substantially improve the economic efficiency of the jurisdiction."
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Land value tax
A land value tax (LVT) is a levy on the value of land without regard to buildings, personal property and other improvements upon it. Some economists favor LVT, arguing it does not cause economic inefficiency, and helps reduce economic inequality. A land value tax is a progressive tax, in that the tax burden falls on land owners, because land ownership is correlated with wealth and income. The land value tax has been referred to as "the perfect tax" and the economic efficiency of a land value tax has been accepted since the eighteenth century. Economists since Adam Smith and David Ricardo have advocated this tax because it does not hurt economic activity, and encourages development without subsidies.
LVT is associated with Henry George, whose ideology became known as Georgism. George argued that taxing the land value is the most logical source of public revenue because the supply of land is fixed and because public infrastructure improvements would be reflected in (and thus paid for by) increased land values.
A low-rate land value tax is currently implemented throughout Denmark, Estonia, Lithuania, Russia, Singapore, and Taiwan; it has also been applied to lesser extents in parts of Australia, Germany, Mexico (Mexicali), and the United States (e.g., Pennsylvania).
It is also known as a location value tax (LVT), a point valuation tax, a site valuation tax, split rate tax, or a site-value rating.
Most taxes distort economic decisions and discourage beneficial economic activity. For example, property taxes discourage construction, maintenance, and repair because taxes increase with improvements. LVT is not based on how land is used. Because the supply of land is essentially fixed, land rents depend on what tenants are prepared to pay, rather than on landlord expenses. Thus, if landlords passed LVT on to tenants, they might move or rent smaller spaces before absorbing increased rent.
The land's occupants benefit from improvements surrounding a site. Such improvements shift tenants' aggregate demand curve to the right (they will pay more). Landlords benefit from price competition among tenants; the only direct effect of LVT in this case is to reduce the amount of social benefit that is privately captured as land price by titleholders.
LVT is said to be justified for economic reasons because it does not deter production, distort markets, or otherwise create deadweight loss. Land value tax can even have negative deadweight loss (social benefits), particularly when land use improves. Economist William Vickrey believed that:
"removing almost all business taxes, including property taxes on improvements, excepting only taxes reflecting the marginal social cost of public services rendered to specific activities, and replacing them with taxes on site values, would substantially improve the economic efficiency of the jurisdiction."