The incidence of local rates, with some suggestions as to policy

Appendix G

§1. By “rates”, Marshall means local [property] taxes. He begins by noting that taxes that cost more than they give are “onerous” whereas those that give back more than they cost (easy when they are focussed on collective goods rather than private subsidies) are “beneficial”. Since rates are local, they will attract/repel workers and citizens based on that benefit/cost calculation.

§2. A building on land will be more/less profitable over the long term (think net present value) if it fits/misses the neighbourhood’s character, and this character changes over time.

§3. Onerous rates can reduce the value of a building to those who may rent it; even beneficial rates can be bad if they deliver value far later than they are collected.

§4. It’s a good idea to have the same national tax on building values (close to my idea), whereas local rates (on building and/or land value) may need to vary with local conditions. Hopefully they are beneficial!

§5. The incidence (burden) of rates will balance out over time, but it can be onerous (or beneficial) in the short run, which will tend to affect decisions on where to live/work/build.

§6. Speculation occurs at the border between town and outlying areas (e.g., farms), i.e., where the gap between current (use) value and future (converted) value is greatest.

§7. Landlords and farmers tend to share the burdens of rates over the long term, due to lower turn over of occupation.

§8. Rates on residential property should be higher than those on commercial property because turnover is lower in the former (benefits and costs can sync over time) and competition for location is higher in the “commercial” sectors (where rent is an important part of costs/profits).

…while taxes, and especially graduated taxes on expenditure in general [e.g., VAT], present great technical difficulties to the tax collector; and further cost much more to the consumer directly and indirectly than they bring into the revenue; taxes on houses are technically simple, cheap in collection, not liable to evasion, and easy of graduation (p 661).

§9. Marshall says, again, that the costs and benefits of rates need to be balanced over the long run, to make sure that those who pay also receive the benefits from their contributions.

This post is part of a series in the Marshall 2020 Project, i.e., an excuse for me to read Alfred Marshall’s Principles of Economics (1890 first edition/1920 eighth edition), which dominated economic thinking until Van Neumann and Morgenstern’s Theory of Games and Economic Behaviour (1944) and Samuelson’s Foundations of Economic Analysis (1946) pivoted economics from institutional induction to mathematical deduction.

Author: David Zetland

I'm a political-economist from California who now lives in Amsterdam.

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