Taxation on Land Value and Development When There Are Negative Externalities from Development |
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Authors: | Jyh-Bang Jou Tan Lee |
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Affiliation: | (1) Graduate Institute of National Development, National Taiwan University, No. 1 Roosevelt Rd. Sec. 4, Taipei, 106, Taiwan, Republic of China;(2) Department of International Business, Yuan Ze University, No. 135 Yuan-Tung Rd., Chung-Li, Taoyuan, 320, Taiwan, Republic of China |
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Abstract: | This article employs a real options framework to investigate the design of taxation on both land value and development in a competitive real estate market. We assume that developed properties reduce open space, and thereby harm urban residents. However, ignoring this negative externality, landowners will develop properties sooner than is socially optimal. A regulator can correct this tendency by imposing a positive tax on development or a negative tax on land value. Alternatively, the regulator can implement both instruments simultaneously, in which case an increase in the tax rate on development will be accompanied by an increase in the tax rate on land value, and vice versa. |
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Keywords: | Negative externality Real options Optimal taxation |
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