Optimal Commodity Taxation and Land Use Regulation Under Property Tax Constraints

We derive rules for the optimal taxation of commodities and regulation of devel-opment when land is differentiated by access to commuting destinations, but not all revenue can be raised in a lump sum fashion. The optimal property tax rate increases with population and commuting costs. The welfare effects of policies that reduce land consumption, such as growth boundaries and gas taxes, are ambiguous even without traffic or environmental externalities. Interactions with labor tax distortions can jus-tify such policies, while interactions with property tax distortions can justify opposite policies that distort land consumption upward. JEL Codes: H21, R13 This paper derives rules for the optimal taxation of commodities and regulation of devel-opment when land is differentiated by access to a single commuting destination but distortive taxes are imposed by the government. We obtain three major results by combining the Ram-sey commodity tax framework familiar to public economists with the workhorse monocentric city model of urban economics. Our first result is that if spending time commuting increases workers ’ marginal utility of leisure, then “anti-sprawl ” policies that reduce aggregate commuting may be justified eve