microbook_3e-page92 - The effective price of an asset...

Info icon This preview shows page 1. Sign up to view the full content.

View Full Document Right Arrow Icon
Application to Land Value Taxation As you’ll read in my memo (“economic thought on Land Value Taxation”) , I was asked for my opinion on how shifting a city’s property tax burden from the combined value of the land and building, to the value land primarily would affect investment in the city’s existing stock of buildings. If you think of kapital (buildings) and land (abbreviated T for “Terra”) as inputs into the production of asset returns and if you think of tax rates as the input prices, then you can analyze the question with isoquants and isocosts. They had hoped that by taking the tax burden off of the building’s rental value, property owners would have a greater incentive to renovate their properties – renovation is a form of investing in capital . (They were seeking to rid the city of unsightly abandoned properties)
Image of page 1
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: . The effective price of an asset equals IJ 1 asset p , where asset p is the market price of the asset and IJ is tax on the return to the asset. Land Value Taxation what they thought would happen: what I thought would happen: Under the proposal, the overall tax burden would remain constant, so the only effect would be a substitution effect . If the isoquants have a nice curved shape, then property owners would substitute out of land and into kapital and their asset returns would be higher. I argued that the isoquants may be L-shaped due to the complementarity between land and buildings. Consequently, the proposal would have no effect on the optimal holdings of land and kapital. T K isoquant when inputs are perfect complements T K Page 92...
View Full Document

{[ snackBarMessage ]}

What students are saying

  • Left Quote Icon

    As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

    Student Picture

    Kiran Temple University Fox School of Business ‘17, Course Hero Intern

  • Left Quote Icon

    I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

    Student Picture

    Dana University of Pennsylvania ‘17, Course Hero Intern

  • Left Quote Icon

    The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

    Student Picture

    Jill Tulane University ‘16, Course Hero Intern