Lecture Public economics (5th edition) - Chapter 13: Taxation of wealth

Lecture Public economics (5th edition) - Chapter 13 define the wealth tax base, explain the merits and shortcomings of taxing personal net wealth, define the property tax base, describe property tax rating and assessment, explain the effect of property tax on equity using the benefit principle,... and a number of other contents.

• Define the wealth tax base

• Explain the merits and shortcomings of taxing

personal net wealth

• Define the property tax base

• Describe property tax rating and assessment

• Explain the effect of property tax on equity using the

benefit principle

• Analyse property tax incidence using partial and

general equilibrium analysis

• Discuss the efficiency effects of a property tax

• Define a capital transfer tax

• Discuss the economic effects of capital transfer taxes

• Tangible goods

– Houses

– Durable goods

– Land

– Financial assets

• Cash, shares, bonds

• Insurance policies

• Pension rights

• Intangible goods

– Investment in education.

Wealth is the value of accumulated savings, investment, gifts, and

inheritances.

Or

Personal wealth is the present value of a person’s expected real

income.

Examples

• Annual wealth taxes

– On people and/or companies

• Property tax

– Land and improvements

• Capital transfer tax

– Estates and gifts.

• Equity

• Efficiency

• Revenue and administration

• 2 types

– Real property

• Realty

– Personal property

• Furniture, motor vehicles, shares

• Impersonal tax

• Tax base

– Land (farm, residential, commercial)

– Capital invested in improvements (farm buildings, homes, business buildings).

Urban tax

• Site value rating

• Flat rating

• Composite rating

Tax rates

• Based on market value of property

Assessment

• Capital value system

• Site value system

• Market value system

• Benefit principle of taxation

• Incidence of a property tax

• Partial equilibrium analysis

• General equilibrium analysis

Elements of selectivity:

• Only immovable property is taxed

• Tax base can include land or improvements

• Tax bases & rates can differ between tax jurisdictions

Effects of selective property taxation:

• Decisions are influenced by tax differentials

• Discourage investment

• Encourage more efficient use of land

• Perverse effects

• Unrealised capital income

• Burden on property owner

• Increases risk of farming

• Administration

• Inheritance tax

• Estate duty

• Donations

• Economic effects

– Equity issues

– Efficiency issues

– Administrative issues.