Land is back, it should be taxed, it can be taxed

Land is back. The increase in wealth in the second half of 20th century arose from housing and land. It should be taxed. We introduce land and housing structures in Judd's standard setup: first best optimal taxation is achieved with a property tax on land and requires no tax on capital. With positive taxes on housing rents, a first best is still possible but with subsidies to rental housing investments, and either with differential land tax rates or with a tax on imputed rents. It can be taxed. Even absent land taxes, one can tax it indirectly and reach a Ramsey-second best still with no tax on capital and positive housing rent taxes in the steady-state. This result extends to the dynamics under restrictions on parameters. (c) 2021 Elsevier B.V. All rights reserved.

Automated summary

Land and housing should be taxed, and optimal tax strategies can be implemented in different ways to achieve the best possible tax outcomes. Even without land taxes, indirect taxation can still be used to tax land and housing while keeping capital untaxed.