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Land and Property Tax Effect on Direct Foreign Investment

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Suppose you were appointed economic adviser to a less-developed nation in Africa. The nation seeks to encourage capital formation and wants to increase the rate of saving of its own residents and encourage foreigners to invest in their nation. What role would you assign to property taxes in this nation to achieve its objectives?

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Solution Summary

The solution explains property tax's role in serving the development of an emerging economy in 432 words with 3 references/sources linked.

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Property tax-- specifically land tax-- would serve the development of a emerging economy well.

More liberal definitions of "property" likely mute investment-- especially difficult on economies is a Value-Added Tax which is essentially a national sales tax. This is a regressive tax, affecting lower incomes at a greater relative rate than higher incomes. This, in turn, mutes domestic demand, and creates drag on economic development. Additionally, a VAT likely taxes capital investment-- a terrible policy for a government attempting to stimulate economic growth. Businesses invest only when it will increase their net profit, so taxes on general "property and plant" would make it more expensive to grow, reducing the incentive to invest at all. ...

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