We use an unique data set to examine the extent to which changes in the Danish land tax are capitalized into house prices.

The Danish local government reform in 2007, which caused tax increases in some municipalities and tax decreases in others, provides plenty of exogenous variation, thus eliminating endogeneity problems.

The results imply full capitalization of the present value of future taxes under reasonable assumptions about discount rates.

Consequently, the paper gives an empirical confirmation of 2 striking consequences of a land tax. First, it does not distort economic decisions because it does not distort the user cost of land. Second, the full incidence of a permanent land tax change lies on the owner at the time of the (announcement of the) tax change; future owners, even though they officially pay the recurrent taxes, are not affected as they are fully compensated via a corresponding change in the acquisition price of the asset.

See Also:

“New Evidence on Property Tax Capitalization”
“Post-Corona Balanced-Budget Super-Stimulus: The Case for Shifting Taxes onto Land”
“Economic and Spatial Effects of Land Value Taxation in an Urban Area: An Urban Computable General Equilibrium Approach”
“Land Value Taxation and New Housing Development in Pittsburgh”
“Site Value Taxation on Australia: Where Land Is Taxed More and Improvements Less, Average Housing Values and Stocks Are Higher”
“Estimating Property Tax Capitalization: A Critical Comment”
“The Consequence of Taxing Land Value”
“Reconsidering land value taxation: The golden key?”