Fiscal Instruments for Sustainable Development: The Case of Land Taxes

Potential costs and benefits and the feasibility of introducing a land tax

To explore the potential impacts, costs and benefits of introducing land taxes globally, PBL commissioned a study to the Mercator Research Institute on Global Commons and Climate Change. The study explores the potential costs and benefits of land tax implementation, the possible distributional impacts, and the feasibility of introducing land taxes in a developing countries context.

Taxing land for reaching the sustainable development goals

The outcomes indicate that in many countries the introduction of land taxes would be feasible, provide a stable tax base and potentially limit distortions to the economy. Distributional consequences are manageable and no more difficult than for other taxes, for example by exempting part of the land rents from the tax. Moreover, land taxes may help in incentivizing more efficient and sustainable use of land. This would require a clear land policy, with for example designated nature areas that are exempted from the tax. Formalizing and securing land tenure by establishing a land registry is a pre-condition. Concerns regarding the feasibility and costs of implementing land taxes seem overrated, but the political will to introduce land taxes and strengthening of administrative systems to facilitate implementation are necessary.

With the global community committed to support developing countries in strengthening their capacity for domestic revenue mobilization (Addis Ababa declaration 2015), this report strengthens the case to make land taxes part of that effort. Given that the specific design of a land tax is highly context specific further work is needed, this study hopefully providing the motivation for doing so.