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Equity and Efficiency Effects of Land Value Taxation
IMF working paper using optimal-taxation theory to show that land value taxation is efficient and can also be made progressive — equity and efficiency are not in tension.
Summary
This 2022 IMF working paper applies modern optimal-taxation theory with heterogeneous households to land value taxation. It addresses a common worry: that an efficient tax must be regressive.
Key Finding
The authors show that LVT is not only efficient (no deadweight loss, since land supply is fixed) but can also be progressive — because land ownership is highly concentrated among the wealthy, taxing it falls disproportionately on high-wealth households. Properly designed, LVT improves both equity and efficiency, refuting the usual equity-efficiency trade-off for this tax.
Bears On
- Outcome: LVT can replace capital taxes without efficiency loss
- Outcome: Land value tax can be progressive
Sources
- Gregor Schwerhoff, Ottmar Edenhofer & Marc Fleurbaey (2022), "Equity and Efficiency Effects of Land Value Taxation," IMF Working Paper WP/22/263. PDF