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Conditional Harberger Tax Games

Baron Georges-Eugène Haussmann … transformed Paris with dazzling avenues, parks and other lasting renovations between 1853 and 1870. … Haussmann… resolved early on to pay generous compensation to [Paris] property owners, and he did. … [He] hoped to repay the larger loans he obtained from the private sector by capturing some of the increased value of properties lining along the roads he built. … [He] did confiscate properties on both sides of his new thoroughfares, and he had their edifices rebuilt. … Council of State … forced him to return these beautifully renovated properties to their original owners, who thus captured all of their increased value. (more)

In my last post I described abstractly how a system of conditional Harberger taxes (CHT) could help deal with zoning and other key city land use decisions. In this post, let me say a bit more about the behaviors I think we’d actually see in such a system. (I’m only considering here such taxes for land and property tied to land.)

First, I while many property owners would personally manage their official declared property values, many others would have them set by an agent or an app. Agents and apps may often come packaged with insurance against various things that can go wrong, such as losing one’s property.

Second, yes, under CHT, sometimes people would (be paid well to) lose their property. This would almost always be because someone else credibly demonstrated that they expect to gain more value from it. Even if owners strategically or mistakenly declare values too low, the feature I suggested of being able to buy back a property by paying a 1% premium would ensure that pricing errors don’t cause property misallocations. The highest value uses of land can change, and one of the big positive features of this system is that it makes the usage changes that should then result easier to achieve. In my mind that’s a feature, not a bug. Yes, owners could buy insurance against the risk of losing a property, though that needn’t result in getting their property back.

In the ancient world, it was common for people to keep the same marriage, home, neighbors, job, family, and religion for their entire life. In the modern world, in contrast, we expect many big changes during our lifetimes. While we can mostly count on family and religion remaining constant, we must accept bigger chances of change to marriages, neighbors, and jobs. Even our software environments change in ways we can’t control when new versions are issued. Renters today accept big risks of home changes, and even home “owners” face big risks due to job and financial risks. All of which seems normal and reasonable. Yes, a few people seem quite obsessed with wanting absolute guarantees on preservation of old property usage, but I can’t sympathize much with such fetishes for inefficient stasis. Continue reading "Conditional Harberger Tax Games" »

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