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The Revenue Potential of Site Value Tax: Extension and Update of General Equilibrium Model With Recent Empirical Estimates of Several Key Parameters

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  • Shawna Grosskopf

Abstract

. Although appealing on the consideration of efficiency, the site (land) value tax has been dismissed by some economists as an unviable alternative to the local real estate tax on the ground that it cannot generate sufficient revenue. From earlier work based on a general equilibrium model, however, a switch from a real estate to an equal yield site value tax could result in an increase in equilibrium land prices (and hence the site value tax base). In particular, equilibrium land prices will rise with a site value relative to a real estate tax if: (L+K/L) > ex. (fL+ fk)/fk. sx+ ex. fL Critical to that theoretical result are the magnitudes of several parameters including the percent land constitutes of total real estate value, (L + K/L), the elasticity of substitution, sx, the elasticity of demand for real estate ex, and the output elasticities, fk and fL. Based on recent empirical estimates of those parameters, the above stated condition holds.

Suggested Citation

  • Shawna Grosskopf, 1981. "The Revenue Potential of Site Value Tax: Extension and Update of General Equilibrium Model With Recent Empirical Estimates of Several Key Parameters," American Journal of Economics and Sociology, Wiley Blackwell, vol. 40(2), pages 207-215, April.
    • Handle: RePEc:bla:ajecsc:v:40:y:1981:i:2:p:207-215
    DOI: 10.1111/j.1536-7150.1981.tb01389.x
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    1. Sirmans, C. F. & Kau, James B. & Lee, Cheng F., 1979. "The elasticity of substitution in urban housing production: A VES approach," Journal of Urban Economics, Elsevier, vol. 6(4), pages 407-415, October.
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