MICHIGAN ACADEMY OF SCIENCE. 31 



brushes, and eveu perhaps a head tax on Greek immigrants would 

 all act to cut down the demand and hence the price of shoe-polish. 

 The only limit to this decline in price (assuming as we do that 

 the cost of production need not be considered) would be the alter- 

 native use of shoe-polish in blacking stoves and the demand price 

 for it for that purpose. But not all kinds of polish can be used 

 on stoves. 



In the same way a tax on the use of urban land for buildings, 

 whether it be a tax on the building, or on occupiers rent or on the 

 citizens or industries of a town, or on the land itself, must reduce 

 the demand for land for building purposes in that town. This is 

 particularly the case with a local tax in a locality exposed to the 

 competition of neighboring taxing districts equally or nearly as 

 well adapted for the residental or industrial needs of the popula- 

 tion. The effect of any such tax will be to reduce the demand for 

 land for building purposes, either because the demand of tenants 

 has fallen off or because the costs of supplying buildings have in- 

 creased. The land itself is very nearly a tixed supply good; its 

 price is determined by demand and is limited by the profit obtain- 

 able by building on it, i. e., the difference between the rental that 

 tenants will pay and the necessary costs of maintenance and re- 

 pair, including taxes. This difference capitalized at from 4 to 

 10%, according to local circumstances, is the price of the land. 

 (Occasional sales showing rates of capitalization on net yield 

 higher or lower than this are usually based not on immediate 

 yield but on speculative values.) 



It is obvious then that anything which tends either to lessen the 

 demand for l)uildings or to increase their cost must result in lower 

 land values in the locality affected. This is true not only of taxes 

 but of industrial influences. 



It is of course not a complete answer to the problem of proper 

 distribution of taxes to say that the incidence is here or there; 

 the effect of governmental expenditures must also be taken into 

 account. Moreover we can not neglect the presence of economic 

 friction and the consequent necessity of allowing a sufficiently long 

 time for existing leases to expire and for tenants to adjust them- 

 selves to changes in conditions. All I wish to take up iu this paper, 

 Jiowever, is the underlying law of shifting. 



What is it that determines the demand for buildings iu any given 

 community? In the case of business buildings it is the opportun- 

 ity to make money by locating there, and this in turn depends 

 largely on the number and buying power of the residents. In the 



