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
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