Split-rate taxation increases urban construction
Across US case studies, shifting property tax off buildings and onto land is followed by more construction — the effect Georgist theory predicts.
The Claim
When a jurisdiction taxes land at a higher rate than buildings (a "split-rate" or "two-rate" property tax), construction tends to increase relative to comparable jurisdictions. Taxing improvements less removes a penalty on building; taxing land more makes holding a site idle costly.
The Evidence in Numbers
| Study | Setting | What they found |
|---|---|---|
| Oates & Schwab (1997) | Pittsburgh (land taxed ~5× buildings) vs 15 comparison cities | ~70% rise in real building-permit value in the 1980s; Pittsburgh near the top of the 15-city sample while most comparators were flat or falling — despite a shrinking local economy |
| Plassmann & Tideman (2000) | 15 Pennsylvania municipalities, 1972–1994 | A higher land-to-building tax ratio produces a statistically significant increase in the number and value of building permits |
The two findings are mutually reinforcing: the Pittsburgh case shows a large effect in one aggressive adopter; the Pennsylvania panel shows the effect holds across many municipalities with varying tax differentials.
Strength of Evidence
Moderate to strong. Direction is consistent across studies and matches theory (zero deadweight loss on land + removed penalty on building). Main limitation: the most rigorous evidence comes from Pennsylvania, the principal US jurisdiction permitting split rates, so external validity to very different contexts is not fully established.
See Also
Sources
- Oates & Schwab (1997), "The Impact of Urban Land Taxation: The Pittsburgh Experience," National Tax Journal — wiki summary · PDF
- Plassmann & Tideman (2000), "A Markov Chain Monte Carlo Analysis of the Effect of Two-Rate Property Taxes on Construction," Journal of Urban Economics 47(2) — wiki summary · publisher