Neutral Property Taxation Under Uncertainty |
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| Authors: | Jyh-Bang Jou Tan Lee |
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| Affiliation: | (1) Department of Economics and Finance, Massey University Albany Campus, New Zealand;(2) Graduate Institute of National Development, National Taiwan University, No. 1 Roosevelt Rd. Sec. 4, Taipei, 106, Taiwan, Republic of China;(3) Department of Finance, Auckland University of Technology, Auckland, New Zealand;(4) Department of International Business, Yuan Ze University, 135 Yuan-Tung Rd., Chung-Li, Taoyuan, 320, Taiwan, Republic of China |
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| Abstract: | In a framework where no uncertainty arises, Arnott (J Publ Econ Theor 7:27–50, 2005) investigates a neutral property taxation policy that will not affect a landowner’s choices of capital intensity and timing of development. We investigate the same issue, but allow rents on structures to be stochastic over time. We assume that a regulator implements taxation on capital, vacant land, and post-development property so as to expropriate a certain ratio of pre-tax site value as well as to achieve neutrality. We find that the optimal taxation policy is to tax capital and subsidize properties before and after development. We also investigate how this optimal policy changes in response to changes in several exogenous forces related to demand and supply conditions of the real estate market. |
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| Keywords: | Neutral property taxation Real options Tax revenues Uncertainty |
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