By Athiphat Muthitacharoen and George R. Zodrow
This paper analyzes the excise tax effects of a general property tax from the perspective of a small open economy facing a perfectly elastic supply of capital, focusing on the mix of forward tax-shifting to consumers and backward tax-shifting to labor and landowners. The model utilized differs from most that have appeared in the property tax literature as follows:
This result is in marked contrast to that obtained using a four-sector analog of the “traditional view” of the property tax with immobile labor, under which the excise tax effects are borne by consumers and there is clear and significant over-shifting of the tax to the consumers of nontradable goods. This result is robust to sensitivity analyses with respect to the parameters used in the simulations of the model. Our results also suggest that the degree of backward tax-shifting declines markedly in a longer run time frame where labor is perfectly mobile across jurisdictions.