Agriculture Reference
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emotional reactions from the farming community and others (Franzsen and Heyns, 1992;
Van Schalkwyk, 1995.).
Figure 9.2 provides a simple framework for analyzing the incidence of a land tax and its
social costs. As is well known from economic theory, the supply of land is fixed in the pure
case which gives us a supply curve that is perfectly perpendicular to the horizontal axis. One
of the most famous cases for a land tax was made by Henry George on the grounds that
it would help to re-distribute national wealth and alter the obscene picture of 'monstrous
wealth and debasing want' (Mankiw, 1998). Whether or not such a redistribution of
national was feasible given the characteristics of land and the economic realities can be
examined by recourse to economic analysis.
Figure 9.2 presents a negatively sloping demand curve for land in relation to a vertical
supply curve depicting an inelastic supply of land. If we assume an equilibrium price of
land, P eq , which prevails at the point where the negatively sloping demand curve intersects
with a vertical supply curve, economic theory predicts that the introduction of a land
tax would lower the price of land to a level P s which is below the equilibrium level. The
difference between the equilibrium price and the market price of the land accrues to the
government as tax revenue from land. According to Van Schalkwyk (1995), the decline in
land price as a result of the imposition of a land tax would happen because it would have
meant an additional cost to the farming community. The options of discounting the extra
tax-induced production cost by, for instance, raising product prices or land rents do not
Supply of land
Price
P eq
Land tax revenue
P s
Demand
0
Quantity
Figure 9.2. Illustration of the special case of land tax incidence.
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