The objective of the Work Package 1 is to study the optimal design of the property tax. Taxation has three main objectives:
1) Finance provision of (local) public goods and services
2) Redistribute income and wealth
3) Steer economic behavior
Not every tax needs to pursue each of these three objectives, it is the impact of the tax system as a whole that matters. The goal of WP1 is therefore to study which of these three objectives the property tax could achieve in an efficient manner and which of these objectives it should pursue. We will first try to answer these questions for each objective individually:
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Why should the property tax pursue a specific objective?
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How can the property tax pursue this objective effectively?
With respect to the third objective, we will look for different ways to steer households’ decisions with regard to two features of the housing stock that create large negative externalities: i) energy use and ii) urban sprawl. Specifically, we will study whether a specific design of the property tax – i.e. adjustments in the tax base and/or tax rate schedule or some other feature – is able to internalize these externalities in an efficient manner thus without inducing large distortions or creating new additional externalities.
After addressing these questions for each objective individually, we will bring all three objectives together to see how they interact with each other. Adjusting the design of the property tax to accommodate one objective can affect its ability to achieve another one. For example, trying to stimulate households to improve the energy-efficiency of their property might increase the uncertainty with regard to its expected revenue and could reduce redistribution of income from rich to poor households. The following questions will be pivotal in the second phase of WP1:
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How do the three objectives interact with each other?
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Should and can the property tax pursue all three objectives?
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If not, which objectives should the property tax pursue?