INTEPATI(NAL RANKi Kl9? RECONSTIICTION AID iELFm DEVEIDPFi ECONO'*CS DZPAR NT URBAUl AND ?`SGIONAL ECOl01ICS DIVISION URR-7405 URBAN AD REGIONAL REPORT NO. 74-5 REAPP?AISING URBA'T AND TAX EFFECTTVENSS AGAINST POLJ-- GCALS ORVILLE F. GRIMES, JR. JUIITE 1974 hese materials are for intemal use only anid c.r' c- c- clted to stirrQ te d i uso and critica co n. Views are those of the autir ard should not be red be clee wit th author to protect th~e tenttivecharcterof týh2eepar. FILE COPY s REAPPIAISiG URA JUDA E T TENJESS AGAINSTr PLICYT GOAT, oy Orville F. Grimes, Jr Land taxation in urban areas is an id a Yhose time h.s been coming for more than sixty years. That is a lo g aime to recog*nize tie benefits of taxing land more heavily than c her factors of production, and the equitr of capturing betterment, for so ew tangible results. Isolating rgasons for this aprarent anonaly is a difficult task, one wiose magnitide is increased b the treimndous arLety of economic and social contexts within which lnd taxes have be n applied. Even so, a rough but reasonably firm gene; alization seems ossible. In the eperience of imst countries oi nunicipalities, taxatior of ur'an land value increments has been less of a failure ab oltely than rolative to Jhe efficiency and equity g(als it was desig ec to achieve - goals tha- have often been unrealist: c and overabiti us. At the sarme time, the practical difficulties of iax collection ar administratiorn and the potency of political oppos: tion to t xdng 1 no have neen underes timated, The theme of this paper is one of (vE ) cautious optmism that uroan land taxation is now beg-inning to come ir o its own. The process has been slow and iterative. -rban land taxati m remains more as potential than realitr. Yet the advanta,es and the varie ,y of taxes on urban Iand are increasingly being recognized, particularly ir the developing world. Tax tools are being sharpened, in Taiwan, Franc-, Korea, Sweden, Colombia and elseihere. More importantly, experience hE taught that land taxes are rarely if ever effeetive w,en used alone. 'hey are increasingly viewed as part of an integrated approach to url in land developinent, in which improvements in urban la,d use occ-,r thrc ýgY fiscal tools applied in combination with public acqu,isition o:' parce s in advance of need, pre-emption, land reserves and preservat on of >pEn spaces. * Economist, Urban and egion il Economics Division, -nternational Bank for Reconstruction and DeveLopment. Views are the author's and not necessarily those of the Wo rld Bank. 、月 勵 & 2 LY 3 TRt TIMDT TS Tie rationale -for ta.-dng urban land inorements is welJ. establishe, t co-risists of three main coriponents: (1) A tax on land does not affect the ,09 f holdin land relative - c tlije c at of develo-Ping or se _n : it, nd 30 Will not allter production docisions at the Tiargini land as a ohvsi Ily -Pi n,) matter how hea-iily taxed; * ca- fixed factor will not I'leave to and (3) Against- a backdrop of sustained land . n-ce inf lation in both develoy -.d ancL develop'Lng count=7 cilties, governments are missing an opportunit r in i,otu cEpt-uripZ more social_ ea-ned incremental value for their own use. ' -Isca instru7ents at the diaoosal of governments include 75 land value taxes; (b) betterment le egj, (c) taxes on speculative gains from ` '-Ie S Ele o d,- and (d) =ovement charges. This paper All e+ ,-eviei,, these Instruinents and discuss Vaeir Ofectiveness in the light of -0 terr a-dve policy goals. Thpl i cations of land taxation for urban pro Ject desigr will be examined in a concluding section. -and Va:! ae Tnerement Taxes Attempts are legion to capudre for use 'bv local gove-cnment5 and other , dblic bodies the increment in land price arising from gc neral Z -a-,, ionaz , forces, decisions of private firms `,iaving externa"- effects on t --_ txable -Darcel, and actions of the public a7.:thorities themr;elves, eithe- -)Y diect investment or by planning decisions. Since, in Harr.ss? apt phas , Une development value of a parcel is 11the wrth of a planning )ermission,ll ,public authorities have long f 31t justified in emoving at lea ,t a paxt of th4s increase through tax:ation. inportant questions arise in the application of "land. increment taxation. First, few would disagree that the tax should be le..ried on ur,7-ealized as well as realized gains. Land increnaent taxation may occur a," the time of sale (as in much of LatJn ;jqe1ica, India3, Korea, Indonesia and Israel) or periodically though the parcel.. has not chan, ed -anus (as in Denmark, Italy an,-A' the UnIted lKingdom). In general, though., Yir4st ies of Finance must be satisfied with t IAon of reali7,ed ga--"ns sMee it is rarely worth the cost of reassessment to determidne ir.gited valu s at intervals short enough to capture significa-Ft increments. -1/1--since Vais paper focuses I]Tm_aril- _79oat-_',7n 7 1-rr' 'be miadp to describe the morkings of t'- e orthodox prqpar#r t, - (on i and and buildings) or to examine tie effects of switching from , -O-Perty tax to a tax on land alone. Lhis subject has be Q exte-,3ively treated in Hicks (7). For the same reason I abstract fr&Mies---_c,n of t e -- arl rel' the appropriate tax base - annual vs. capital va]-'a a---d ist es. 21 C. Towell. Harriss, "Land. Value Increment tic - Demise of the 1-,Fkiti ,-,h Rettermien-'- Levy, *1 Nationa--l. T Lx Journal, XV (Decernber 197' )68. P A case can be made that land value incre -ent taxation should 'e progressive. The Land Value Tncremuent Tax (LVII) of Taiwan, for example, one of the most successful, has rates of 20 percent of land rce increment if the increment is less than IdO percent of the parcel's previous value; 4O per-ent on the incrment betwee)n 100 and 200 percent; 60 percent on the increment betwee- 200 and 300 percent; and 80 percent on all increments over 300 percer t of the parcel's previous value. The recent experience oC Taiwan as a hc Le and of Taipei shows that about 54 percent of total WVIT collections rere obtained from the / 80 percent bracket, with another 24 percent fro the 60 percent bracket. A imoortant unresolved issue is whether progre, -ive land increment taxation encourages parcellizatLon of holdings. In the presence of progressive rates, households hive an incentive to divide their holdings among relatives or friends and 3aT in the lowes- bracket on each. This has usually not proved much of a problem in pra-tice, however, first because title registration is long and time consuming, ad second because decisions ahout whether to bui2d, improve or sell are more difficult for the landowner to make and enforce if nominal ownership is dispersed, even among member s of his inmediate family. -et .erment Levies Since 1427, when Great -ritain authorized charges to appropriate the increase in land value brought about by street widening, sewer extensions and other public investments, the re-.urn on land attributablE to commnity investment has been regarded as a o11ective good. Bitair's e].erience with capturing betterment in modern ines provides valuable less-s of procedure and technique.2/ A devele ment charge instituted in 19k? attempted to capture all of the Idevelopme t ralue" of land, the diference between value in current use and vale in the future, more productive use (adjusted for costs including rf Ak that planning permission ud possi:le. The e)perience was largely a fa ilne because landowners refused to sell at a price which did not reflec , their anticipation of the .uture net worth of the land. With a 100 percet development charge, the effective supply of land for urban development dried up. The 1967 Land Com.irssion lery, with a rate of 40 percent, was more successful in avoiding these "lock-in" effects. 177Dpartment of Taxation, Ministry of Finance. Data pertain To177 2/ "etterment is "ary increase in the value of land (including the buildings thereon) arising from central or local gove.nment acticn... (and) enhancement in the value of property arising from gener,,.l communit influences, such as the growth of urban populations." Final Report of the Expert Coimittee on Compensation And Betterment, London, 19L2, paragraphs 260 and 27. For completeness, explicit mention might be made of the fact that actions of private housenolds and firms on other parce s x-ight also affect the parcel :wn queston, andc so should be included in a dfn tion of bettermaen . 4 4 These and other experiences seem to he -e produced a consensus that tne optimal rate of betterment collection mairy be around half that to which society is theoretically entitled. The feasible rate is often somewhat lower. In Taiwan, pure betterment levies, called "construction .enefit charges," are often reduced from recommended levels of 50 to 70 percent to 30 or 40 percent through constituent pressures operating through the Taipei Municipal Assembly. In Australia, where land increment taxation has long been in operation, betterment levies were introduced in New South Wales in 1945 and 1970. The first, at 80 percent, was never applied largely because the Valuer-General could not determine that the granting of planning pemission or other overt public action was in fact the cause of land price increases.l/ The seconi applied specifically to land of "intermediate" worth -- neither urbanized nor rural -- at 30 percent, a rate certainly lower than the revenue-maxinriing rate but po-entially high enough to influence land use in the desired directiois. The Calcutta *mnprovement 7Trust levies a betterment tax of 50 percent of Ihe annual value increment chiefly on road improvements such as widening.2/ Infortunately, little reliable information on the performance of this tax seems to be available. The ultimate incidence of a bettermen levy is bound up with its effects on the quantity supplied of urban 1 nd. If landowsers had well formed expectations that the tax would be :)ermanent, the urden is likelv to fall entirely on the seller. On the ther hand, there are two situations where part of the taxt might well be -a,sed on to purchasers of developed land. The first occurs when there a-,e widespread expectations that'the betterment levy will be repealed (as in1 zreat ?ritain in 191;9-50 and 1968-69) and thus that land prices will be able to resume their unfettered growth. The incentive to delay selling produces a leftward shift of the supply curve. In the second situation, a tax is Levied when the land is actually developed instead of when planning permission is granted. In this case the landowner can defer development until the rise in the price of his property compensates for his tax liability. Taxes on Speculative Gains from Land Sales Perhaps because land speculation is difficult to defLne, it is often treated as an unmitigated evil to be eliminated through heavy taxa tic or other means. This approach seems shortsightcd. Just as spe culators in wheat avert astronomical prices and perhaps famine next year b;r buying whea .:is year and releasing it slowly, speculators in land can hel ensree that land develops at an optimal rate over time. 7n a risk-av-3rse world, 1/ .. Hort, n Introduction to land Developmen> Contribution Law and Pract ,e in -New- South Wales, 1972. I am indebted to Donald G. Hagnan for maeri 1. on the New South vales experience. It is worth noting that difficultie re from the separation of value increments on land and -ot as many ad feared, from assessing land value and building value separi t y 2/ For a per.eptive overview of urban land polcies in India, see Rake,h Mohan, "Indian Thinking and Practice with Urban Property Taxation and Land Policies: A Critical View," Princeton University, Ma?ch 1974. & as long as there is uncertainty about what the fut re price of land will be, someone deserves a pa-yment for bearing the ris that not all land will appreciate in value to the expected degree. -land tax should not eliminate speculation but reduce it to socially acceptable levels. 1hat these levels are is largely a political decision that each municipality or central government must make. Most taxes on speculative gains from the sale of land define speculation in terms of the time period between saLes, and are not concerne about establishing intent. A high or even confiscatory rate applies on gains from the sale of land held less than 2 to 7 years in most cases. In the 1963 Prench tax reforms, gains from the sale of buildable land held les than 5 years are treated as a form of "commercial and industrial profits," and are thus subject to individual income taxation. In India, gains ar3 similarly added to income and taxed at the ordina2:7 income tax rates. On land held less than 2 years, all of the capital gain is added to income, while on land held 2 years or longer 65 percent of the gain is added to income. Prior to 1967, Swedish capital gains from land transfers were taxed in full on land held less than 7 years, were not taxed at all on land held 10 years or more, and were taxed at 75, 50 and 26 percent on land held less than 8, 9 and 10 years respectively. The current system makes the long term withholding of land more costly. Gains from the sale of land held Less than 2 yearsare taxed in full, while land. held longer than 2 years is taxed at 75 percent. This system seems to have fewer undesired effecits on the supply of urban land than when the high tax rate period is longer. With the French tax, many landowners simply waited out the 5 year period before selling on the basis of a lon- term gain. Improvement Charges Impovement charges, as distinct from betterment levies, aim -o recover for tAe public authorities the cost of publicly supplied improvements. There is little concern about the relation between these costs and the aggregate benefits to landowners. They may also encourag: private improvements on vacant land. From the wide variety of taxes and charges which fall into this category, three have been singled out for special attention: (a) taxes encouraging improve,Ients; (b) equipMent charges; and (c) land replotting and readjustment operations. axes encouraging improvements -- These taxes, ior control rather than revenue purposes, are used where ordinary land taxation does not adequa tel7e pinist vacant land relative to developed land. ais may occur if, as in India and other countries, properties are assessed on an annual rentil value basis and there is thus no hypothetical rent. Taxes encouraging improvements have been poor relations among land taxes, but not because they are inherently unworkable. Rates are generally lower than the opportunity cost of improving the land, i.e., the anticipated gain in market value due to development in the future rather than now. Moreove , -6- an effective tax encouraging improvements might pl, ce significant short term pressure on the building materials and constr otion labor markets. Assessment problems may also arise. The French vs ant land tax ("taxe d'urbanisation") instituted by the Land Planning 7 w of 1967 was never put into practice because no one estimate of marke value could e relied upon. Finally, and most important, the tax is neutral with respect to the ultimate use of the land. It encourages all productive uses of land equally. This is why many countries have found it advisable to supplement improvement-encouraging taxes with planning mechanisms to control the timing and direction of development.l/ U ment Charges -- Despite drawbacks such as problems in apportioning costs and benefits and erosion of the tax base through political compromises, the attractiveness of what might generically be terred 4euipment charges" is gaining wider attention. rance, for exarple, nas traditionally attempted to recoup the cost of publicly proviced infrastructure, principally through direct participation by developers. In the early 1960's a forerunner of the current equipment charge was designed to make property owners share in the cost of public works. Insuperable problems arose in its application, however, and it was never put into effect. The base had been severely restricted by the exemption of businesses and industries. Nbre importantly, local authorities continued to prefer financing their investments through levies or. developers. The current infrastructure charge ("taxe locale d'equipenent") is levied on the basis of floor area constructed. In widespread use in the late 1960's, the tax is currently less effective because Aan' localities switched back to direct charges on developers beginnirg in 1971. Equipment charges in France are also levied by a number of public land development agencies. The Etablissement Public Baise-Seine in Bcuen, in charge of drawing up and applying land use plans in Upper Normandy, receives two thirds of its revenue from a special 3harge it is empowered to levy on the owners of properties it improves. The other third is earned from land sales. zd replotting and readiustment -- Another "self-Vinancing" method of land davelopment gaining attention is the land readjustment scheme, most often associated with Korea and Taiwan. Associations of landowners or the public authorities themselves undertake projects involving land conversions to more productive uses, amalgamation of parcels, and installation of public facilities on land. In Korea, land readjustment schemes have succeeded /n interesting variation on this theme is the Land Hoardag Charge advocated by the Conservative government in Great Britain in April 1973 A charge of 30 percent per year would have been levied on properties undeveloped three years or more after having been granted planning perm ssion The planned impact was of course to increase the supply of serviced sit s, although one predictable result would probably have been fewer properti s neing put up for planning permission. Ever before the recent change of government it appeared that the Conservatives would not carry the propo 1 forward. See "Widening the Choice: the Oext SVeps in Housing" (nI. 5 30, April 1973). d 7- in developing large sections of Seoul and other principal cities. According to a complicated formula, landowners cede to the city a portion of their propertV in return for access roads, sewer mains and water and electricity hookups on the remaining portion. As much as 50 percent of the land is retained by the municipality to meet its expenses and to increase the supply of sites on which public facilities are provided. Even so, with land price inflation the aggregate value of all remaining private parcels after completion of the readjustment project is typically greater than the pre-project value of the entire area. Therefore, both the lanoowners and the government may see themselves as being better off with these projects than without them. THE PANOPLY OF EXERIENCE: AN EMERGING SYNTHESIS Categorizations of land taxes qua instruments would be incomplete without a judgment as to the targets these instruments are designed to reach. At the risk of oversimplification, it may le suggested that land taxes aim to accomplish three major objectives: - provide reves for eneral use y nationa and eg,ci local governments; - underwrite the cost of specific public impruvements; - achieve a more equitable distribution of ur an real resources, The redistribution objective is by far te most difficult to evaluate,and the one where the actual and the declz.red priorities of public authorities may diverge the most. Its impaut depends first on whether the percentage of net wealth held in the frm of land is large or syall. Empirical evidence on this score is very scarce. in developing countries, land holdings may form a sigiificant portion of weal! Ab.ecause of a lack of alternatives. Securiti es are often uncor etitive with land embryonic domestic capimakets, and real intei ast rates on savings deDosits are typca Vow or nega fC7774FKea. in A nuary 1974 instituted stiff measures designed toredtribite wealth away from landowners. At the same time as exemptions from property taxa'ion were increased at the low end of the scale, progressively larger rate increases were levied on high valued propertias. The increase in the highest bracket was 2500 percent over the prevous rate. hhether this will discourage large holdingq or simply invi-e evasion remains to be seen. 4 4 Control of land price inflatioi throng capitalizalion of land t,ax liaboilities is a means of attainiLg_*Lad use Objiect vs,.ota ob.eciv initel.jor examEle, the redistribu&l' don objecTeV1 ne furthered bv reduced land pricE inflatior if landowners tend to have higher than average incomes and if barriers to Entry are eased for low income families establishing themselves in urbar areas. Poor families may be able to locate closer to centers of emplc,yment and thus to incur smaller outlays for transportation. These impac-1s are extremely difficult to measure, however; the evidence accumulated so fz,r is notional at best. Compared with income taxes, exise du -ies and other fiscal tools, land taxes are meager but not insnmific nt providers a Jo government. As indicated in Table I below, eriain land tax revenues iave risen over the pas-; five years both in per ca,ita terms and as fractions of GDP. E::cept for the Tatfan Lan' V-1ue Tax, collection elasticities of selected land yalue are are a ea3er than 1nitv, as shown L Aal I. All elasticities except the Taipe Land Value Increment Tax were significant at the two-tailed .O5 .evel dk spite the low number of degrees of freedom.l/ One must nonetheless conclude hat re- anne performanc- has no )een very impressive. Zn the recent past- only -he two land val e levieE in Taiwan and the land, component of the ?rench property tax bro-ght in more than $1 per person. Development charges per capita in lingapor, did increase fivefold from 1967 to 1971, but fr a low initial level. Comparisons on a tax effort basis, using total eceipts as a pe cent of GDP at current market prices, demonstrat) that )nl the 1972 Ta wan Land Value Tax accounted for as much as ne hal.' of one percent of GDP.2/ This state of affairs would caise more concern if ma)t ization of tax receipts were the sole objective .f land value taxation. It is not, of course. As Neutze states, land taxation is o-e of a series o. measures to aorevent the (urban land) market from underm-ning the objectves of urban planning." 3/ Betterment levies and land value increment taxes, and all other taxes for that matter, fulfill differnt and often co flicting objectives at different times. It is of en tho-gh' desirable f r certain 1/hIt should xe noted that the&se estima es are hghly prelimin ry and mus; ce treated with great caution. They are brseK on a small n mber of years and, because of time pressures, have o -,vet been cor ected for ESveEEmnts. Since land and building p'iies typically ise more 1 rapidly tran wholesale or retail prices in eeral (particu arly in Korea and Taiwan), these estimates would tend to overstate Jne true 2/ A more robust data base would have permittei these prelimir- ry compari :ns to be adjusted for more influences on fisc' capacity than ts possiole ,ere. T the extent that development charge and bettermen- levy recei, ts can be locationally determined, the pattern of receipts co-,ld be relat i to locational differences in per capita income. Compariso:s on a per taxpayer basis would also have been useful. / G. M Neutze, "Policy Instruments ir the Ur an 'a Land 'arket Samma-,y R port, paper prepared for the Fifth Meeting of the 1'rban Environr nt Sector G Oup, OECD, November 1973. Table I. Lanl Tax Revenues as Fractions of Po-pu_ ticn ani GDP Revenue Per RÅevenue/GDI Tax capita (US$) (Percenti 1/ oranine, d- ay `cortribution fonciere ces proprietes non batiestt) 1968 .4.28 .68 1973 6.9 Taiwan, Land Value Tax 967 0.76 1972 2.16 Taiwan, Land Value Increment Tax 1967 0.16 .06 1972 1.60 .3 Singapore, Development Charges 1967 0.17 .03 1971 0.84 .09 Korea, Real Property Speoulation heck Tax 1968 0.005 .003 973 2/ 0.11 .03 GDP at market prices. 2/ Estimirate . Source: Di. ection Generale des lmpots; Dominique Lewandowski and Pierre Bi-ger, Note sur la fiscalite fonciere. laris, Ministäre de 1lEconomie et des Finances, 1971 Ministry of Finance. s Table II. Land Tax Collection Elasticities, Se-ected Countries _ - va Constant Collection Country and Tax Term Elasticity R Korea, Property Tax -16.1 1.65 .97 (-7.9) (12.1) Korea, Registration Tax -13.0 1.18.9 (-4.2) (7.2) Seoul, Property Tax -13.2 1.53 .91 (-4.0) (6.3) Seoul, Registration Tax -12.2 1.51 .9c (-3.6) (6.1) Seoul, All Local Land Taxes -7.0 1.19 .96 (-14.5) (10.14) Seoul, All Land Taxes -7.6 1.26 (-4.6) (10.5) Taiwan, Land Value Tax 2.1 .L1 .85 (2.0) (5.C) Taiwan, Land Value increment Tax -10.2 1.37 . ) (-1.9) (3.2) Taipei, Land Value Increment Tax -4.3 1.61 . (-1.1) (2.6) Frarce, Land Value Tax -6.4 1.01 .9 ("Cortribution fonci re des (-15.5) (33.5) proprietes non bties") i-values in parentheses below the coefficients 4 - 9- taxes to be economically neutral, raising revenue with a minimum of sturbuance to the economy. (The practical realiy that no tax has ever breen neutral across all marginal allocations in no way suggests t1at the goal is not worth being reached). At the same time, the tax syszem as a whole functions as a structure of incentives, encouraging desirable resource allocations and discouraging uidesirable ones. 1his disparity of goals arises often in land taxation. An iprovement- encouraging tax clearly tries to reallocate resources by punishin g vacant land relative to developed land. Yet a tax on incremental value, if calculated correctly and administered fairly, can remove only the "unearned" increment not due to private production decisions and thus not disturb the marginal investment choice. 3imilarly, a betterment levy is in part a device to produce revenue for piUblic investment in cases where funds from other sources, in particular the orthodox property tax, may not be found. Yet financing projects through betterment levies can clearly have important allocative effects. In practice, the justification for taxa;ion of land increments is as much financial and economic as moral. Raising total tax receipts from land can alleviate some of the burden of taxs on capital, stimulating the flow of investment and the develooment of financial .institutions. Moreover, a p y betterment levies or equipment charges tends to r-duce uncertain t the -attern of future growth of the metropolitan area. Private -nvestors Bht cc more willing to commiit funds to development projects if they know that a certain volume and twpe of public nditure will aso be un ertexen. When land policy instruments are viewed in the context of alternative objectives, the range of potentially available tools rather suddenly becomes much wider. Traditional approaches emphasized the contrast between market and non-market controls; between measure; influe-ncing the decisions of households and firms (taxation, building ceaa restrictions, zoning) and public investments with specific nrultiplier etffects on the urban economy. One analyst speaks of "a market s:-stem approach for the private sector and...an urban l ad policy approach for the public sector." 1/ h iat is emerging in fact is a synthe3is in hnich tne urban land market itself' is the central variable. Instead of coTpetition between market forces and planning measures, there is a range of public and private decisions affecting the la-r market and though it the price of land, the distribution of access to urban services among income groups, a-nd the price and availability of housing. To take one exaMle, until quite recently few urban eccnomists and planners considered that user charges in public services car have /t. N. Archer, "Urban Land Policy," in Trban I'1anning and the Property Market (University College, London, 19717, p. 2. mportant impacts on the spatial configuration of urban land use.1/ The concentration of values downtown implies that recipients of water, sewerage and drainage installations often pay charges far in excess of the cost of service to them.2/ The excess of receipts over average :ncremental cost of supply could be used to finance extensions of water supply and other services at the periphery. Admittedly, one must guard against what might be termed the 'rmicro-aggregated" view of urban development, which takes land (or transport or public finance or any other specialization) as the keystone of an urban system. Yet it would be difficult to argue with the breadVq of Archer Is definition of urban land policy as "tLe study of all government policies and programmes affecting the development and use of urban land and the process of policy-making." 3/ iPLICAITONS FOR DROJECT DESIGN: A FINAL NOTE The foregoing provides a brief typology of urban land control devices, with emphasis on advanced and developing country experience. Another common element, though an obvious one, deserves mention. Land development is typically a discrete process. It tends to be narrowly defined spatially and specific in scope, often radically changing the configuration of the community where it is undertaken. In essen.e, land development lends itself well to being undertaken on a proj 3ct basis. The focus of the World Bank and other agencies on the side and services approach to provision of low income housing well illustrates tcis project approach to the land development process.4/ Consequently, land control instruments must be scrutinized carefully to determine their fit in project contexts. Betterment levies can be used when most or all project benefits are easily measurable and especially when most or all project beneficiaries are readily identifiable. This type of financing is thus best suited to investment, in quasi-public goods benefiting particular segments of the population, such as highways, rural feeder roads, sewer systems and street improvement, _Rotabe exceptions are Paul B. Downing, "User Charges and the Developmeat of Urban Land," National Tax Journal, XXVI (December 1973), pp. 631-37, and J. A. Stockfisch, "The Outlook for Fees and Service Charges as a Source of Revenue for State and Local Governments," National Tax Association, Proceedings of Sixtieth Annual Conference, 1967, Columbus, Ohio, 1968, pp. 86-100. 2/ This is the case, for example, in Sydney. See R. W. Archer, Site ValuE Taxation in Central Business District Redevelopment, Trban landInstitu e Research Report No. 19, 1972. 3/ "Urban Land Policy," p. 2. '/ This secwion draws on material contained in Part II of my "irban Land and Public Policy: Social Appropriation of Betterment" (I:RD Wrking 1 3per, 1976). Given the low taxable capacitv of cities in developing countries, user fees such as equipment charges are often an attractive and feasible neans of project finance. There is consequently the risk that iriority will be given to investments in which benefits are localized ra-her than generalized and the benefits attributable to a small nuaber rabler than to the populaTion as a whole. To an extent this is of course t.Lue for all development projects, and is one reason -Wry action on projects iith significant emloymnt, nutrition and income distribution effec>s, in which benefits have been more difficult to quantify, has not been as rapid as in other sectors. Nevertheless, availability of finance should not be the overriVing factor in the choice of lard improvement projects. In light of these considerations, land taxation financ ing i%A-ough betterment levies, equipment charges and the like) wou-A seem no be appropriate for projects in which: a) 7enefits are great in relation to costs, to minimize resistance. This is often difficult to achieve since revaluation of properties, usually a necessary compone-t of land taxation finance, can constitute a major porti.on of total project cost; b) 7enefit measures account for decreases in land value iI areas other than the project site. This "compensation for worsement" is part of the land use control systems of :he Netherlands, Sweden and Taiwan; C) Execution of the project and payment of charges to fin -nce the project or to capture benefits are closely associa ed in time; ) Careful sczutiry is undertaken of projects in jurisdic;ions where evasion of property taxes reduces revenues signi'icantly. These projects may in fact represent a t-ansfer from tiose who pay for the improvements to those who had previous.y evaded other taxes. This list is certainly not exhaustive, )ut is intendei to highlight certain components of project evaluatio. Its coveragle c.an ae widened and deepened in the course of further research and project exerience d References Archer, R. W. Site Value Taxation in Central Business Distric., Redevelopment. Urban Land Institute Research Report No. 19, 1972. 2. Archer, R. W. "Urban Land Policy." Urban Plarning and the Property Market. London: University College, 1971. 3. bowning, Paul B. "User Charges and the Development of Urban Lnd." National Tax Journal, XXVI (December 1973), 631-37. ). Grimes, Orville F., Jr. "Urban Land and Public Policy: Socia Appropriation of Betterment." Washington, D. C.: Inter- national Bank for Reconstruction and Development, 1974. Harriss, C. Lowell. "Land Value Increment Taxation: Demise of the British Betterment Levy." National Tax Journal, aXV (December 1972), 567-72. 6. Hicks, J. R. and Hicks, U. K. "The Taxation of the Unimproved Value of Land." Readings on Taxation in Developing Counries. Richard Bird and Oliver Oldman, eds. Baltimore: John H>pkins Press, 1964. 7. Mohan, Rakesh. "Indian Thinking and Practice with Urban Property Taxation and Land Policies: A Critical View." Princeto University, March 1974. 8. Neutze, G. M. "Policy Instruments in the Urban Land Market: Summary Report." Organization for Economic Cooperation and Development, November 1973. 9. Stockfisch, J. A. "The Outlook for Fees and Service Charges e Source of Revenue for State and Local Goverrments". National Tax Association, Proceedings of Sixtieth Annual Confererce, 1967. Colizr'bus, Ohio, 1968, 8-100.