MICHIGAN ACADEMY OF SCIENCE. 37 



tic, the tax will bo added to the rent. The suburban house will 

 cost 131.25, and the urban one |37.50. But the difference which 

 the tenants is Avilling to pay is only |5.00. The extra |1.25 must 

 come out of the site rent; it equals 25% of the site rent in this 

 case, which has induced IMerson and others to lay it down as a 

 rule that the tax will be divided proportionately between the build- 

 ing and the site. 



But if we take the second case, and assume that the man would 

 really prefer to dwell in the city the result is somewhat different. 

 This preference will show itself by his paying somewhat more, or 

 taking a somewhat poorer house, or both. Which, and to what ex- 

 tent, is hard to determine. Suppose we assume that he will spend 

 $35 for a house in the city, untaxed, the house itself being worth 

 $20, w^hich, of course, leaves |15 for the site. The suburban house 

 is the same as before, |25. A tax of 25% on gross rental would 

 naturally raise that of the city house to 142.75, and the other 

 to 131.25, a difference of |12.50. But the city house is only |10 

 more desirable to the tenant, so the |2.50 must fall on the site. It is 

 not however 25% of the site value, but only 25 7o of the difference 

 im, rent between the two competing houses, including both their 

 site and building values. 



The opposite case nmy now be taken, the man who naturally pre- 

 fers to live in the suburbs. He will not live in the city unless he 

 can get as good a house at a price which will make his total ex- 

 penses less, or else a better house for the same outlay. He will pay 

 $25 in the country, |2S in the city for a similar house, or |30 for 

 a house worth, as a house, |27 on a site worth |3. Add the tax at 

 the rate of 25% and the houses will cost, respectively |31.25, |35, 

 and 137.50. The tenant's estimate of the advantage of city life 

 is only |3. Therefore he will pay only |31:.25 for the smaller city 

 house, or 130.25 for the larger. The difference ($0.75 or $1.25) 

 must come out of site rent, but it is not necessarily proportioned 

 to site rent. It is always a proportionate part of the estimated 

 differential advantage of one competing house over the other, and 

 this may be equal to site rent, or greater, or less. 



So far I have discussed a tax on rental collected from the tenant. 

 Except for the ijiitial difficulty in shifting while existing leases are 

 in effect, the ultimate result of a property tax ought to be nearly 

 the same, if we assume that the tax can be shifted at all, i. e., if we 

 assume an inelastic demand. 



As the value of property is the capitalization of net income, the 

 property with more valuable sites will be taxed more under our 



