London School of Economics on the taxation of land values
The June 1993 Journal of Economic Literature contained a long paper titled “Taxation and Development” written by Robin Burgess and Nicholas Stern of the London School of Economics. Their treatment of “wealth and property taxes” was quite brief and to the point:
“Wealth is inherently difficult to observe and measure. It may be concealed, exported (e.g., capital flight) or shifted into assets which are exempt from taxation. …Land and buildings are immovable, visible assets usually with legal titles of ownership. Land, being easily observable, in inelastic supply (at least “unimproved” land) and with an unequal distribution, would seem to be a natural base for taxation from the perspectives of administration, efficiency, and equity. While historically there re times and places where the land tax has been important, the recent record has been poor.” (p.782)
“An obvious and important example of a possible method of agricultural taxation is the land tax. The distribution of land in developing countries is often very unequal and it can be argued that land is in inelastic supply. Land is visible, immovable, and serves as a good indicator of wealth. Effective land taxation requires careful land records. This does not in principle raise difficulties which are excessive when compared to measuring the base for other taxes – landowners have a strong incentive to establish legal titles to their lands. From the viewpoint of equity, and efficiency and administration, land would seem the natural base for agricultural taxation and has been seen as such by economists from David Ricardo to Henry George.
“There is a problem with land quality. One would want to measure this by looking at potential income. …This raises, however, the further question of whether improved land is in inelastic supply and the answer would often be negative. To this extent the attraction of the efficiency argument for taxing land is diminished. Another disadvantage of the land tax is that it involves no co-insurance between government and farmer…
“These drawbacks are small relative to the overall attractiveness of land taxes. The small contribution of land taxes to overall tax revenue and its relative decline over time are thus mainly explained by fierce and effective resistance to this form of taxation.”
My question: On what basis would the authors conclude that the improvement of land makes those locations elastic in supply?