Site Value Taxation and the Timing of Land Development

Abstract. Recent writers have challenged the traditional view that a tax on site value is neutral, but there is still disagreement as to the effects of the tax. The site value tax affects the timing of land development in that it provides an incentive for landowners to develop land sooner than under a property tax levied on improvements also. Confusion has resulted from a failure to distinguish market value from development value. The incidence of the site value tax must take into account the dynamics of untaxing capital and of the capitalization of the tax increase on land values, as well as of the resulting increase of land supply and its effect in further reducing land values. The increased profitability of capital improvements could then increase land rent from the demand side. Obviously, amidst such dynamic changes, the overall effect on land values and rents is unsettled pending further research.