The property tax as a tax on value: Deadweight loss

Consider an atomistic developer who decides when and at what density to develop his land, under a property value tax system characterized by three time-invariant tax rates: tau(V), the tax rate on pre-development land value; tau(S), the tax rate on post-development residual site value; and tau(K), the tax rate on structure value. Arnott (2005) identified the subset of property value tax systems that are neutral. This paper investigates the relative efficiency of four idealized, non-neutral property value tax systems [(i) "Canadian'' property tax system: tau(V) = 0, tau (S) = tau(K); (ii) simple property tax system: tau(V) = tau (S) = tau(K); (iii) residual site value tax system: tau(K) = 0,tau (V) = tau(S); (iv) two-rate property tax system: tau(V) = tau (S) > tau(K) > 0] under the assumption of a constant rental growth rate.