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Are Property Tax Abatements for Business Structures an Indirect Form of Land Value Taxation?

John E. Anderson and Richard F. Dye

July 2011, English

The efficiency advantages of a land value tax (LVT) compared to a traditional property tax on both land and structures are well established. In particular, a land-only tax does not discourage choices to build or maintain structures while the property tax does. Authorization or adoption of LVT is, however, quite rare. Much more common is the abatement of some or all of the tax on newly developed property.

Property tax abatements take a variety of forms. The paper addresses the question: What form would property tax abatements take to achieve the advantages of an LVT? To best mimic an LVT, abatements should be comprehensive, unconditional, and permanent. A review the features of existing abatement programs across states finds instead that most are particular, conditional, and temporary. Policy recommendations are offered that would make abatement programs closer to the LVT ideal.