The economics of land gains taxation : the Vermont case Public Deposited

http://ir.library.oregonstate.edu/concern/graduate_thesis_or_dissertations/mc87pt41t

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  • Governments have employed special capital gains taxes to curb speculation in real estate and raise public revenue. Economic theory suggests that the introduction of a gains tax with a declining rate structure over time will induce prospective buyers to reduce their demand for land and will induce sellers to offer less land for sale at any one point in time. In this way, land price increases and subdivision activity are expected to be slowed. The implications of a gains tax as a rural land use control motivated the present study. First, the specific case of the Vermont gains tax is introduced along with a brief history of the Vermont land market and a critique of prior research on the Vermont tax. Then, the costs and benefits of land speculation are examined as a justification for government intervention in land markets. Next, the impact of the Vermont gains tax on individual buyer and seller decisions is explored and the impact of the Vermont tax on the entire land market is discussed. A hedonic land price determination model is developed and used to test hypotheses about the impact of the Vermont tax in different land markets. Pooled cross-section time series data from Vermont sample towns are applied to the model; and ordinary least squares is used to estimate land price equations. Chow tests indicate that structural changes in price determination occurred between the pre- and post-tax eras. Differences between taxable and nontaxable prices in the post-tax era are largely attributed to land quality differences - taxable land tended to sell for a higher price per acre. A statistical analysis of the impact of the Vermont gains tax on Vermont land market activity is also presented. The tax apparently has not reduced land prices or absentee ownership trends, but the percentage of speculative sales to total land sales has fallen over time. In conclusion, future directions for rural land market research are discussed along with policy recommendations for changes in the Vermont tax.
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