Drawing the Line: The Spatial Non-Neutrality of Land Value Taxation (Aldighieri, 2026)

Summary

"Drawing the Line: The Spatial Non-Neutrality of Land Value Taxation," by Pedro Aldighieri (Northwestern University), is an SSRN working paper (posted July 2026) that identifies a specific, technically serious limit on land value taxation's canonical efficiency result — the Henry George Theorem's ancestor result, Arnott & Stiglitz (1979), which showed a 100% LVT can finance local public goods without distortion.

The Mechanism: An "Inverse Pigouvian Subsidy"

Per the paper's own abstract: "This result fails once assessed land values capitalize neighboring spillovers, which enter the base only when they cross property lines." Because mass appraisal methods estimate a parcel's land value partly from the value of neighboring land — spillovers a parcel's own boundary does not fully contain — the tax base itself becomes sensitive to what happens next door. The paper shows this creates two distortions: an LVT "favors merging parcels under positive spillovers and splitting under negative ones, and subsidizes externalities that depress neighbors' assessed land, functioning as an inverse Pigouvian subsidy." In other words, an owner whose land use imposes a negative externality on neighbors (noise, blight, pollution) sees their own assessed value fall less than the harm they cause, since the harm is partly capitalized into the neighbors' assessments instead — a subsidy to negative-spillover generators, and by the same logic a penalty on positive-spillover generators, running exactly backward from what a Pigouvian tax/subsidy scheme would want.

Empirical Test

The paper tests this with a difference-in-differences design using Cook County (Chicago) parcel splits and mergers, 2001–2023: if the mechanism is real, merging two parcels should change how spillovers capitalize into the resulting single assessment differently than splitting one parcel into two. Per the abstract, the empirical results "confirm the required mechanism: assessed land values move in opposite directions, reversing between nuisance and positive-spillover exposures" — direct evidence that assessed land values respond to the predicted parcel-boundary effect rather than tracking a spillover-free, purely site-specific value.

Relation to the Georgist Case

This is a genuine, technical qualification to LVT's textbook neutrality claim, in the same family as Bentick & Mills' timing-neutrality critique (a research page) already cited on the wiki's tax capitalization page: both show that a tax on assessed value rather than pure, spillover-free site rent can introduce real distortions the "LVT is neutral" slogan glosses over. The mechanism here is specifically about assessment methodology — how spillovers get captured across a parcel boundary — rather than about the land tax concept itself, which is a useful distinction for the wiki's assessment feasibility coverage: it is not that land value can't be measured, but that measuring it accurately at the parcel level, with spillovers correctly attributed, is harder than the textbook 100%-LVT result assumes.

Nuances and Limits

• A boundary/attribution problem, not a case against LVT generally. The paper's own framing is about a specific failure condition (spillovers crossing property lines) rather than a wholesale rejection of land value taxation's efficiency case.
• Abstract-level source (B-claim). SSRN blocked direct access to the paper itself; this page is built from the paper's verbatim abstract (obtained via the Crossref API) and independent corroboration of the author's institutional context (a Northwestern economics PhD student who has presented related work at Yale's Economic History Lunch series), not a read of the full empirical design, regression specifications, or magnitude of the effect.
• A working paper, not yet peer-reviewed.

Bears On

• Concept: Henry George Theorem — a technical limit case on the theorem's canonical no-distortion result, driven by spillover capitalization across parcel boundaries.
• Concept: Tax Capitalization — extends the page's existing "timing neutrality is contested at the margin" caveat with a second, spatial-neutrality qualification.
• Concept: Mass Appraisal Methods — the mechanism depends specifically on how assessment methodology attributes spillover value across parcel lines.

See Also

• Henry George Theorem
• Tax Capitalization
• Mass Appraisal Methods
• Objection: Land Value Can't Be Assessed Accurately

Sources

1. Pedro Aldighieri (2026), "Drawing the Line: The Spatial Non-Neutrality of Land Value Taxation," SSRN Working Paper, DOI 10.2139/ssrn.7107758, posted July 2026. papers.ssrn.com — fetch blocked (403) to this session 2026-08-29; verbatim abstract obtained via the Crossref API (api.crossref.org/works/10.2139/ssrn.7107758) — used for the inverse-Pigouvian-subsidy mechanism, the Arnott-Stiglitz framing, and the Cook County 2001–2023 difference-in-differences design and result, all quoted directly from the abstract above (B-claim; abstract-level, full paper and empirical detail not read).