| Sumario: | This article describes a model in which the excess of local public sector benefits over tax liability causes shifts in the demand curves for various classes of residential property. The model is used to generate statements about market distortions or the lack thereof, and the progressivity of the tax/benefit package under a variety of circumstances. Until the work of Peter Mieszkowski, most economists regarded the property tax as simply one more example of an excise tax which drove a wedge between purchase and sale price, thus generating a deadweight loss. Problems of unequal assessment aside, the question of progressivity was to be answered by measuring the income elasticity of expenditure on housing, which is of course identical to the income elasticity of demand if the price elasticity of demand is unity. With a proportional property tax, a free market will generate an oversupply of low income housing, and some form of control such as zoning is necessary to restore efficiency. The vertical distribution of net fiscal burdens is determined by the allocation of land among activities and is independent of the structure of taxes except insofar as the tax structure influences land use.
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