Abstract
In spite of many achievements of urban economics with respect to the effects of the capital gains tax on land use, little has been done to examine the effects of a combination of the inheritance tax and a capital gains tax could have on land use. Using an overlapping-generations model, we examine the effects of a combination of the inheritance tax and “a realized capital gains tax at the time of death” on land use, land prices and land development. We show that even if there is a lower valuation of land in the inheritance, such a new taxation system can increase the efficient use of land, encourage land development and reduce land prices. A new taxation system can be used not only for promoting efficiency, but also for improving equity.
