On Modernizing Local Public Finance

Abstract . Urban economists tend to agree that land value taxation is both equitable and efficient. Then why won't American urban areas reform their property taxes into a land value tax? One explanation may be that the climate of opinion is that the taxation of wealth is wrong. This may be another of the legacies of the Great Depression. In the 20 years preceding, levels of property taxation increased very substantially; this was associated with rapid urbanization and big increases in public expenditures. Even with the collapse of property values urban governments extended expenditures and hence taxes on real property—as they did again with inflation in the 1970s. But in the 70s residents were predominantly owner-occupants—a result of counter depression policy. Their hostility to taxing unrealized capital gains is the obstacle advocates of land value taxation have to overcome.