An Introduction to Two-Rate Taxation of Land and Buildings

Federal Reserve Bank of St. Louis Review, May/June 2005, 87(3), pp. 359-74

Posted: 8 Aug 2016

See all articles by Jeffrey Cohen

Jeffrey Cohen

University of Connecticut - School of Business

Cletus C. Coughlin

Federal Reserve Bank of St. Louis - Research Division

Date Written: 2005

Abstract

When taxing real property at the local level in the United States, land and improvements to the land, such as buildings, are generally taxed at the same rate. Two-rate (or split-rate) taxation departs from this practice by taxing land at a higher rate than structures. This paper begins with an elementary discussion of taxation and the economic rationale for two-rate taxation. In theory, moving to a two-rate tax reduces the deadweight losses associated with distortionary taxation and generates additional economic activity. The paper also provides a history of two-rate taxation in the United States and a summary of studies attempting to quantify its economic effects. Discussions of the practical and political challenges of implementing two-rate taxation complete the paper.

Keywords: land value taxation, property taxation

JEL Classification: R3, H2, H7

Suggested Citation

Cohen, Jeffrey and Coughlin, Cletus C., An Introduction to Two-Rate Taxation of Land and Buildings (2005). Federal Reserve Bank of St. Louis Review, May/June 2005, 87(3), pp. 359-74. Available at SSRN: https://ssrn.com/abstract=2819587

Jeffrey Cohen (Contact Author)

University of Connecticut - School of Business ( email )

368 Fairfield Road
Storrs, CT 06269-2041
United States

Cletus C. Coughlin

Federal Reserve Bank of St. Louis - Research Division ( email )

411 Locust St
Saint Louis, MO 63011
United States

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