Impacts of Property Taxes on Planning and Settlement Development—Germany as a Living Lab

Abstract

From an international perspective, German property tax reform offers an interesting field of research, as several models now exist in parallel. The spectrum ranges from a tax based on the area (square metres) of the whole property, with a higher weighting on the building (Bavaria), to a tax on land value only (Baden-Wuerttemberg). These two extreme cases are examined with regard to their expected effects on settlement development and planning goals. The comparison is made within a framework of a simple centre-periphery scheme and completed by a burden shift calculation. With some exceptions, the results indicate that the inclusion of the building and a minor role of the land value in the tax base (Bavarian model) are not supportive of more compact forms of settlement, yet cause rising housing costs and lead to more inefficient use of land. The distributional effects also tend to be regressive with regard to the location of the property. Thus, the Bavarian model tends to run counter to important planning objectives. With regard to the criteria presented, the Baden-Wuerttemberg model works in the opposite direction. The other models applied in Germany are between these two poles.