THE COMPARATIVE EFFECTS OF A NON-NEUTRAL LAND VALUE TAX IN A TWO-PERIOD MODEL OF URBAN DEVELOPMENT

I analyse a two period model of urban development in which a non-neutral land value tax accelerates city growth by encouraging the development of vacant land in the first period and decreases the size of the city in the second period. In contrast, a wage tax decreases the size of the city in both periods by increasing the cost of labor. At the level of an individual city a non-neutral land value tax results in a smaller dead weight loss relative to a wage tax of equal yield.; However, this result is not generally true when we study the relative efficiency of a land value tax and a wage tax in a system of identical cities. For this case a wage tax is relatively more efficient under a set of plausible restrictions. This analysis demonstrates the danger of making national policy prescriptions on the basis of results for an individual city.