Question

Explain the impact of property taxes on urban sprawl in your own words, as discussed in Slack (2016

Answer 1

Answer- Nevertheless, urban sprawl is associated with multiple negative environmental, social and economic impacts (for an overview, see Brueckner and Kim, 2003;EEA, 2016;Haase and Schwarz, 2009). Environmentally, it involves the consumption of natural resources, the destruction of natural landscapes and increases in greenhouse gas emissions (EEA, 2006b, 2016, Lambin et al., 2000.

However, urban sprawl cannot be considered efficient as long as it does not take into account externalities associated with the abovementioned environmental, social and economic impacts. Not accounting for these externalities implies that land will be developed more/sooner than socially optimal (Altes, 2008;Brueckner and Kim, 2003;Jou and Lee, 2007;Perman et al., 2003).

Simulation models integrate current data and statistical information into mathematical relations, and are particularly suitable for predicting land use changes and to explore different policies (Lambin et al., 2000;Poelmans and Rompaey, 2009). For example, Bento et al. (2005;USA), Jou and Lee (2007;theoretical study) and Kulmer et al. (2014; for Austria) assess the impact of property taxes on urban residential density patterns, while Jou and Lee (2007;theoretical study) and Wu (2001; theoretical study) assess the impact of land taxes on urban residential density patterns; Brueckner and Kim (2003;theoretical study) and Peng and Wang (2009; for USA) explore the impact of property and land taxes on urban residential sprawl; and, finally, Ambarwati et al. (2014; for Indonesia) and Tscharaktschiew and Hirte (2011; for Germany) evaluate transport policies and the impact of improving the public transport network on a city's residential development. Overall conclusions of these studies include: i) property taxes are efficient anti-sprawl policies; ii) under some circumstances property taxes can either encourage or contain urban sprawl, whereas land taxes are less distortionary; iii) land taxes positively influence sprawl patterns; iv) encouraging the use of public transport is welfare enhancing without contributing to a more scattered development; and v) land use patterns and household settlement preferences depend on the spatial distribution of amenities in a city.

Note that the housing tax corresponds to a standard property tax (levied, however, as an excise tax instead of an ad valorem tax), while the land tax matches taxes of this type levied in some cities (in excise not ad valorem form, however). Observe also that the property tax, if levied in ad valorem fashion, is equivalent to separate ad valorem taxes levied at a common rate on land and housing capital (see Brueckner and Kim 2003). An additional ad valorem land tax would add to the tax burden, with the combined taxes equivalent to a split-rate tax structure that taxes land and capital at different rates (see Oates and Schwab 1997).

A similar point applies to the effects of the commuting tax. Moreover, as mentioned above, the tax on housing square footage is similar to a standard property tax, whose effects are analyzed by Brueckner and Kim (2003). While they show that the property tax causes the city to shrink spatially when the elasticity of substitution between housing and c does not exceed unity (as under the Cobb-Douglas preferences imposed below), Brueckner and Kim's model is not fully closed, nor does it incorporate redistribution of tax revenues.

The housing tax also tends to reduce the dwelling size q as consumers substitute toward nonhousing consumption. The tax's effects on h(S) and q, both being negative, have an ambiguous effect on population density (h/q), as discussed in detail by Brueckner and Kim (2003). These varied tax effects are mediated by the impacts of redistribution of differential land rent and tax revenue, adding to the complex interplay of forces affecting urban form in the taxed city.