Might a Georgist land tax help revive Detroit?

 [[{“value”:”That is the topic of my Bloomberg column.  Maybe they should try it for federalism/discovery purposes, but overall I am skeptical.  Here is one excerpt: The history of “enterprise zones,” which are specially designated areas (usually urban) with lower taxes and fewer regulations, offers a cautionary tale. Enterprise zones have at best mixed results in revitalizing declining areas. Could
The post Might a Georgist land tax help revive Detroit? appeared first on Marginal REVOLUTION.”}]] 

That is the topic of my Bloomberg column.  Maybe they should try it for federalism/discovery purposes, but overall I am skeptical.  Here is one excerpt:

The history of “enterprise zones,” which are specially designated areas (usually urban) with lower taxes and fewer regulations, offers a cautionary tale. Enterprise zones have at best mixed results in revitalizing declining areas. Could fiddling with the marginal incentives embedded in the property tax code really make that much more of a difference? Most economic decisions are made on the basis of broad criteria such as labor force quality, nearby markets and the ease of doing business.

By itself, the uneven record of enterprise zones is no reason not to experiment with land value taxation. But it does limit the upside from any change.

A possible downside from land value taxation is that it discourages land speculation. Land speculators do not, I concede, have the best reputation — but speculation can be either a positive or negative, depending on whether entrepreneurs have good foresight. On the plus side, speculation can keep land from being developed prematurely, or from being locked into uses that later turn out to be too low in value.

If dormant land in Detroit is taxed at a higher rate, that might encourage property owners to develop low-quality housing or retail to lower their tax burden. A landowner might build a small house, for example, rather than holding out for a large, higher-quality apartment complex. The city might get modest growth, but lose out on the chance for a bigger economic redevelopment. Detroit has in recent times shown signs of a revival, so perhaps waiting for the right opportunity is sometimes best.

Of course, speculators can also make mistakes, for example by failing to develop their property more quickly. Still, whether the tax authorities have the foresight and flexibility to do better than property speculators is an open question. In the meantime, some speculators may abandon their holdings to avoid the tax, putting more property in the hands of the municipal government — hardly an ideal outcome.

Note also that the proposal is revenue neutral by design (taxes on developments are supposed to go down), but over time it might simply evolve into a flat-out tax increase.

The post Might a Georgist land tax help revive Detroit? appeared first on Marginal REVOLUTION.

 Economics, Law, Uncategorized