Implementing LVT would likely cause an immediate drop in land values that may cause a small share of taxpayers to experience cash-flow problems. These effects can be mitigated by gradual implementation, direct relief, and over time, longer-term gains in output and income.

“Nevertheless, short-term concerns cannot be entirely eliminated, because the increases in output and income invariably take time to develop, as shown in Section 8, while the immediate drop in land values can be moderated but not entirely eliminated by a slower implementation speed. The fact that our proposed reform has initially moderate cash flow effects, and that it balances the increased LAVT by cuts in taxes on income and capital, is therefore essential to maximize political support. But beyond this, the shift to a significantly higher LAVT would probably also need to be accompanied by relief for a small share of taxpayers that experience cash-flow problems, an issue that we will discuss in Section 5.3.”