We present the optimal tax reform about the property tax on land and housing in Japan. Since the property tax on housing, building and equipment becomes the obstacle to the capital formation on land, it should be abolished. On the other hand, the eff ective rate of property tax on land should be raised in order to attain the revenue neutrality for local government. The abolition of tax on housing induces the higher land price which can bear the increase in the property tax on land, so that such a tax reform would make everyone better off.
