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The Impact of Urban Land Taxation: The Pittsburgh Experience

"In 1979–80, the city of Pittsburgh restructured its property tax system by raising the rate on land to more than five times the rate on structures. This paper explores the impact of this tax reform on the economic development of the city. Following some background on the theory of land taxation and Pittsburgh’s historical setting, the paper presents an empirical analysis of the impact of the tax reform. Pittsburgh experienced in the 1980s a dramatic increase in building activity, far in excess of other cities in the region. The analysis suggests that, while a shortage of commercial space was a primary driving force behind the expansion, the reliance on increased land taxation played an important supporting role by enabling the city to avoid rate increases in other taxes that could have impeded development."

1997

Academic Paper

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Replacing taxes on building structures with taxes on land-value results in more improvements to the land, measured as a higher capital-land ratio. Taxing land-values may distort the choice between earlier and later development of unused parcels of land in favor of projects that promise an earlier stream of revenue. This may distort efficient land use. The Pittsburgh experience affirms standard economic theory, predicting that a major increase in land value taxation should be neutral. That is, have little impact on development decisions. Land value taxation is unique in that it can raise tax revenue without raising the adverse fiscal incentives that other tax measures impose. The Pittsburgh City Council President stated: "I'm not going to say the land tax is the only reason a second renaissance occurred, but it's been a big help".
Robert M. Schwab Wallace E. Oates
Land Value Tax
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