Land taxation, development charges, and the effects on land-use

If land taxation is to be used as an instrument of land-use planning, then it is the intention that the taxation affect land use. If land is taxed so as to raise income for the public purse, or if charges are levied on development to help finance the associated external works, then it is usually the intention that the tax has no, or only a small, effect on land use. The size of these effects can be estimated if the price elasticities of demand for, and supply of, land are known. This paper sets out the theory necessary for making these estimations, and applies it to some topical issues in the Netherlands. The estimated price elasticities are low. As a result, it is predicted that the effects on land use of some taxes which have been proposed (to reduce the use of land for house building, and to stimulate the use of contaminated land and brownfield sites) would be small.