Land Value Tax (LVT)
What it is:
A land value tax (LVT) is a tax on undeveloped property.
How it works/Example:
Local governments that impose an LVT specifically target pieces of property that someone owns but has not developed or modified for residential or commercial purposes. For example, an acre of property in its natural state would be subject to an LVT whereas a piece of property with a home and landscaped surroundings would not be subject to an LVT (but would likely be subject to other types of property taxes).
Why it matters:
Many economists and policymakers like LVTs because they are based solely on the value of the land, which is driven by market supply and demand. In this sense, LVTs do not have the distortive effects of traditional property taxes.