In order for property taxes to be distributed fairly among property owners, the property assessment ratio should be equalized among all pieces of property. Given this criterion,
Property taxes would be the same for pieces of property of equal value and different for properties of unequal value. These differences in the property taxes would, then, be in proportion to the differences in the value of property and could be defended on the ability to pay principle. This assumes, of course that the value of property is an acceptable measure of people abilities to pay taxes.
Property taxes are ranked low in terms of efficiency as well as equity. Property taxes tend to distort the pattern of land use. since property taxes are levied on improvements as well as on land, a lower property tax burden usually falls on unimproved land than on improved land. To the extent that this true, property taxes will encourage the landowner to hold land for speculative purposes and will tend to discourage improvements. If old property of the same value as new property is subject to lower property taxes, property taxes will tend to discourage new property development. …
