Taxation on land value and development when there are negative externalities from development

Jyh Bang Jou, Tan Lee

Research output: Contribution to journalArticlepeer-review

10 Scopus citations

Abstract

This article employs a real options framework to investigate the design of taxation on both land value and development in a competitive real estate market. We assume that developed properties reduce open space, and thereby harm urban residents. However, ignoring this negative externality, landowners will develop properties sooner than is socially optimal. A regulator can correct this tendency by imposing a positive tax on development or a negative tax on land value. Alternatively, the regulator can implement both instruments simultaneously, in which case an increase in the tax rate on development will be accompanied by an increase in the tax rate on land value, and vice versa.

Original languageEnglish
Pages (from-to)103-120
Number of pages18
JournalJournal of Real Estate Finance and Economics
Volume36
Issue number1
DOIs
StatePublished - Jan 2008

Keywords

  • Negative externality
  • Optimal taxation
  • Real options

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