Land tax may be on the capital value of land or on an imputed rental value. Its physical fixity and productive potential, together with the difficulties of avoidance, means land has been seen to form a good tax base. Philosophical arguments have also been advanced since feudal times that landholding is a privilege conferred by the state and that holders are liable to tax in perpetuity. Economic thinkers such as John Locke and Adam Smith have favoured shifting much of the burden of taxation to land for these reasons. There are practical difficulties however in assessing the value of land to be taxed and in ensuring that there are no disincentive impacts on its productive use. Land taxes are in rem and unlinked to the circumstances of owners, which can lead to undesirable distributional consequences.
land tax, impost levied upon real property. It is sometimes called a real estate tax, especially when assessed against both improved and unimproved land. Probably the earliest direct tax and formerly the chief source of government revenue, it was known in ancient China and Egypt. Until modern times, European countries depended on it almost exclusively. In the United States the land tax (including the tax on improved property) has been the chief method of collecting local revenue, accounting for some 25% of all state and local government receipts. The tax may be assessed on the sale value of the property, although a fairer method is classification of the land according to its productiveness. For special theories of land tax, see physiocrats; single tax.
See R. T. Ely and E. W. Morehouse, Elements of Land Taxation (1924); H. Brown et al., ed., Land-Value Taxation Around the World (1955); H. P. Wald, Taxation of Agricultural Land in Underdeveloped Economies (1959).