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How “Smart” is the Split-Rate Property Tax?

Evidence from Growth Patterns in Pennsylvania

H. Spencer Banzhaf and Nathan Lavery

March 2008, English

Urban sprawl has become a policy concern of national prominence. Land or split-rate taxes are one potential way to address this issue. In theory, such taxes can lower the land/capital ratio. This in turn can raise the density of housing units where it is applied, if the average quality/size of each housing unit does not increase by enough to offset an effect on the number of housing units. This research explores these issues, looking at a panel of land uses and demographics in Pennsylvania. We confirm the theoretical prediction that the capital/land ratio increases. We also find that the primary effect is in more housing units, rather than bigger or nicer units, suggesting the split rate tax is potentially a powerful anti-sprawl tool.


Economics, Housing, Property Taxation, Taxation, Urban Sprawl