Land value taxation (LVT), or site value taxation, is a tax that charges landholders a portion of the unimproved value of a site or parcel of land.
LVT is a special form of property tax. There are three species of property: land, improvements to land (immovable man-made things) and personal property (movable things).
LVT is an ad valorem tax where only the value of land is taxed, ignoring improvements to the land (e.g., houses, factories, ...) and personal property (e.g., cars, furnishings, ...). This is different from other property taxes which generally tend to fall on real estate--the combination of land and improvements to land.
One argument for LVT is that it discourages speculative bubbles in land markets, while encouraging the efficient and productive use of land, particularly in urban areas - one estimate of the efficiency gain puts it at £15,000 a year per person. An additional argument for LVT is that increases in land values are created mainly by changes that are not the result of the landowner's own effort; for example, the creation of new infrastructure, or a re-zoning, can dramatically increase the value of a piece of land. LVT encourages government development of infrastructure by providing a way of recouping some of the windfall changes to land values that occur as a result of such investment, placing less of the burden on taxpayers who don't benefit. The tax works in reverse also. If a development has a negative impact on land values (the closing of a nearby transport link, for example), the owner of a site is compensated by an automatic reduction of the charge on the property.
LVT is often said to be justified for economic reasons because if it is implemented properly, it will not deter production, distort market mechanisms or otherwise create deadweight losses the way other taxes do. It is also said to be justified for reasons of fairness in that it recovers for community purposes the value the community creates. It is a cheap (and therefore efficient) tax to administer or pay because much less effort is required to track land ownership than to track income, deductions, capital gains, sales transactions, etc. Tax evasion on land is much more difficult than on financial wealth. For the same reason, it is also much more effective than a development or planning gain tax, which can be avoided by just keeping the land out of productive use.
As well as these pragmatic arguments, LVT may be justified with the philosophical premise that the natural world was originally the common resource of all persons, and therefore LVT is not really a tax, but simply the collection of rent on behalf of those who waive their right of access to the resources they would otherwise have been free to use. Some LVT advocates argue that in consequence, land value should be taxed at a high enough rate to recover effectively all its economic rent from users, and the proceeds should be equally distributed to each citizen in the form of a citizen's dividend. Others favor a combination of citizens' dividend and economically efficient provision of public services (i.e., government provision of services that yield an increase in aggregate land rent at least equal to their cost). Any such implementation of LVT would amount to a substantial land reform. The most influential advocate of this type of LVT was the 19th C American political economist and activist Henry George. Many contemporary American advocacy groups trace their heritage back to his thoughts and writings.