Working Papers Report New Research (Land Lines Article)

Publication Date: May 1998

Inventory ID LLA980505; English

Article

The Lincoln Institute supports research by scholars and practitioners investigating a wide range of land use and taxation issues. In many cases this research is documented in the form of a working paper that is distributed as part of the Institute's working paper series. Abstracts of five recently completed papers are presented below.

The Continuing Redistribution of Fiscal Stress: The Long Run Consequences of Proposition 13

Jeffrey I. Chapman

This paper examines some of the long-run implications of Proposition 13, the California property tax reduction initiative that passed in 1978. Focusing on fiscal stress and local government fiscal autonomy, the paper advances definitions of stress and autonomy, and then derives some potential consequences for local autonomy if fiscal stress occurs.

The paper presents the history of Proposition 13, including the pre-1978 economic and political environment, the initiative itself, and the increasing state dominance of the local public finance sector after the Proposition's passage. In particular, a series of state bail-outs and buy-outs are analyzed in terms of their impact on local fiscal autonomy. Other fiscal constraints initiated by voters and the legislature are also identified. Finally, there is a discussion of recent state actions that shift a large portion of the property tax from local governments to school districts in order to generate more resources for the state.

The paper also describes how California cities and counties have attempted to maintain fiscal autonomy. Some initial empirical work illustrates that counties have very little autonomy while cities seem to have at least some discretion in their revenue and expenditure patterns.

Jeffrey Chapman is professor of public administration at the University of Southern California, Sacramento Center. Contact: jchapman@usc.edu .
WP98JC1, 118 pp., $18.00

Land Value Taxation in Britain for the Benefit of the Community: History, Achievements and Prospects

Nathaniel Lichfield and Owen Connellan

This report examines the economic and social rationales and century-long experience in Britain of taxing land (as distinct from land and buildings in combination) for the benefit of the community. In practice the experience shows attempts under two distinct kinds of legislation. The first relates to proposals for revenue raising, mainly for local government purposes, and the second to proposals that recoup community betterment and infrastructure funding as part of development and planning policy.

Part I deals with the theme of land value taxation. Following an introduction to the principles of general taxation is a statement on the current rating and taxation system in Britain for landed property. An exploration of economic theory and principles of land taxation includes the impact of Henry George's single tax theory in Britain and concludes with an evaluation of past proposals.

Part II introduces the town and country planning system in Britain, since the major efforts to recoup community betterment were made in relation to statutes linked with this system. There follows an account of the relevant legislation introduced by successive Labour governments, and of the unscrambling of those efforts by succeeding Conservative governments. Independently from the exactions in the legislation, there have been efforts to ensure that funding of infrastructure, itself necessary to create development value, is placed upon the development industry as opposed to local government. This Part ends with a summary of the existing situation on betterment and an evaluation of past proposals.

While the themes described in Parts I and II are both aimed at taxing the land for the benefit of the community, they are distinct. Land taxation in Henry George's time did not have to deal with the current practice of town planning. Accordingly, Part III brings out the conflict between planning and land value taxation and describes how the two will need to be made compatible if land value taxation is to be introduced.

In Part IV the report looks at the political prospects for introducing both themes into Britain at the present time. It references the programmes of the three main political parties, leading to the conclusion that a window of opportunity is now possible, following the return to power of the Labour party.

Nathaniel Lichfield is professor emeritus in the economics of environmental planning at the University of London and a partner in Dalia and Nathaniel Lichfield Associates, Urban Environmental Economic Development Planning. Contact: nat@dnla.demon.co.uk. Owen Connellan, a chartered surveyor and valuer, is also a research fellow of the University of Glamorgan in Wales and of Kingston University in England. Contact: oconnellan@aol.com .
WP98NL1, 80 pp., $14.00

Informal Institutional Arrangements in Credit, Land Markets and Infrastructure Delivery in Trinidad

Ayse Pamuk

Informal institutional arrangements, permeating both formal and informal housing settlements, allow markets to function in developing countries, yet their economic, social and policy impacts are largely unexamined. Insights from the new institutional economics literature are used to show the significance of informal institutions in credit, land markets and infrastructure delivery. The analysis is grounded in the experience of Trinidad and Tobago, with empirical information drawn from fieldwork research done in 1993 and 1997.

Research findings show that informal institutions of cooperation (e.g., sou-sou and community-based organizations in unauthorized settlements) significantly support transactions by reducing transaction costs (including information costs), by lowering risk, and by providing mechanisms to cope with uncertainty. They ease transitioning to formal market transactions (such as opening a savings account in a commercial bank) and provide a framework for interaction with government agencies while seeking access to basic infrastructure. Actors that design, adapt and change these institutions support their market transactions intensely with social institutions/capital (e.g. trust, reciprocity and reputation). Policymakers must be equipped with tools to predict adaptation of such locally designed institutions in new circumstances, imagine desirable outcomes and facilitate their emergence.

Ayse Pamuk is assistant professor of urban and environmental planning at the University of Virginia. Contact: pamuk@virginia.edu .
WP98AP1, 38 pp., $9.00

Infrequent Assessments Distort Property Taxes: Theory and Evidence

Koleman S. Strumpf

Economists have long recognized that lags in property reassessment benefit infrequent movers because the lags reduce their property taxes. But, in addition, assessment lags can influence the level of property taxes selected under majority rule. This paper shows that short assessment lags increase property taxes because a majority of voters face a relatively low tax price. However, longer lags reduce the aggregate assessed base so much that property taxes begin to decline.

The research formally characterizes the cutoff between these regimes and shows that taxes are generally above their socially optimal level. This theory can help explain why many people believe property taxes are excessive and can only be reduced with a formal tax limit; it also suggests that the American system of taxing capital gains at realization, rather than on accrual, might result in super-optimal rates.

The theory is tested on a sample of Pennsylvania municipalities in the Philadelphia suburbs. This is an excellent crucible for examining the role of reassessments because they are infrequently performed in Pennsylvania. It is not possible to reject the theory's basic predictions, and numerical estimates suggest that a five-year gap between reassessments increases government revenues six percent above their socially optimal level. However, assessment delays do not impose statistically significant social losses because they benefit infrequent movers.

Koleman S. Strumpf is assistant professor in the Department of Economics at the University of North Carolina at Chapel Hill. Contact: cigar@unc.edu .
WP98KS1, 48 pp., $9.00

Vacant Land in Europe

Barry Wood

As in the United States, many industrialized countries in Europe have expressed concern about vacant urban land, and over the years have initiated schemes of reclamation and renewal. Such schemes have been widely researched and analyzed, and the lessons from these experiences have been used to modify current practice.

This research examines four countries to illustrate the European experience: Italy, France, The Netherlands and the United Kingdom. Each country, because of its planning traditions, physical development processes and industrial history, has approached the problem of vacant land in a different way, resulting in a variety of successes and failures. The research method involved the study of the policies and practices in the four countries with respect to vacant land, as well as a number of case studies.

The report draws together some of the main lessons that can be learned from the European experience. The causes of vacant land are seen to be changing but not declining. It is quite clear, however, that the issue of urban vacant land can be addressed by public actions and policies. It is also clear that strong planning and land development powers need to be coupled with public finance if success is to be achieved.

The report shows that all four countries have developed public-private partnerships. To varying degrees these partnerships have been pushed by legislative powers and pulled by the attractions of public subsidy, resulting in the recycling of vacant land into the local market. One strength of the three continental countries is the great significance their cultures place on the city as a center for life. They are willing to accept both legislative control and the tax cost of urban regeneration, even though much regeneration on the continent is currently restricted by the depressed nature of their national economies.

Barry Wood is a lecturer in the Department of Town and Country Planning at the University of Newcastle upon Tyne, England. Contact: B.D.Wood@newcastle.ac.uk.
WP98BW1, 124 pp., $18.00

Abstracts of more than 40 currently available Lincoln Institute-supported working papers are listed here on this website.
To order the complete printed version of any of these working papers, please call 800/LAND-USE (526-3873).