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
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: Suggested Citation
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