The Efficiency Gains from Agricultural Land Tax Reform

The theoretical efficiency advantages of land site value taxation have been known since at least the time of Adam Smith. But the practical gains from switching taxation of land to this basis have never been measured. Indeed economic theory suggests the deadweight loss from a moderate output tax would likely also be modest. The Tithe Commutation Act of 1836 in England switched taxation of large areas of farmland from a tax on gross output to a lump sum tax on the site value of land. We estimate the rent gains from the reform between 1836 and 1855 using data from 5,422 parishes. We show that converting the tax to a lump sum basis raised rents by £0.63 for every £1 of tax collected. While some of these rent gains may have stemmed from increased investment by landlords in fixed capital such as buildings rented with the land, we argue that much of this increase must have been efficiency gains. Thus the excess burden of the tithe was substantial.