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Farmland Preservation and Differential Taxation: Evaluating Optimal Policy Under Conditions of Uncertainty

Published online by Cambridge University Press:  15 September 2016

Robert J. Johnston
Robert J. Johnston*
Affiliation:
Department of Agricultural and Resource Economics, and associate director, Sea Grant College Program, University of Connecticut
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Abstract

Differential property tax policy for farmland is often set under conditions of uncertainty and limited information regarding landowners’ objective functions. This study examines optimal differential tax policy for a parcel of agricultural land facing uncertain development, identifying instances in which common farmland taxation policies may be non-optimal. Optimal tax rates are characterized given three possible causes of uncertain development: exogenous offers from developers, tax-related reductions in landowner wealth, and a combination of these factors. Model results indicate that underlying causes of uncertain development are critical when seeking to assess the optimality of differential taxation policies, and the use of a single, time-invariant differential tax levy is rarely optimal given uncertain development.

Keywords

differential taxationfarmland preservationland conversionoptimal controloptimal policyproperty taxuncertainty
Type
Articles
Information
Agricultural and Resource Economics Review , Volume 32 , Issue 2 , October 2003 , pp. 198 - 208
Copyright
Copyright © 2003 Northeastern Agricultural and Resource Economics Association 

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