Those Who Benefit Should Pay

There is growing interest in the academic literature, as well as in administrative practice, for the "value capture" concept, which tries to translate into a practice an attractive principle, according to which public agencies can capture through taxation a portion of the unearned profit generated for private landowners when transport and public projects increase adjacent land and property values.
The intent is to capture and redistribute the positive externalities generated by public investment by taxing real estate and commercial property whose values have increased.
Value capture is widespread in several countries. In the US, local administrations make wide use of Development Exactions, Special Assessment Districts and Tax Increment Financing, while in Spain and Latin America they are called contribucíones de valorizacíon. Land banking was developed in Northern Europe at the start of the 20th century and is now in use in the rest of the world, particularly in China. Japan instead has long adopted mechanisms of linkage capture.
Coming to the European Union, the debate on value capture policies is ongoing. Sarkozy recently presented to public opinion the Grand Paris Express, the subway line that will link all the towns of the suburban belt as part of the Grand Paris 2020 project. This decision was accompanied by a plan to secure new resources for investment in infrastructure. The President appointed a committee to list innovative sources of financing to build the new subway. Also in Italy, in 2010 there were signs that the City of Milan was considering value capture taxes to pay for the two new subway lines, as it was done in the 1960s when the red line of the metropolitana was being built.

Given the growing interest for value capture policies in public infrastructure investment, policy-makers should follow a golden rule for correct implementation. Since there is no perfect policy instrument, public actors should choose a value capture tax according to a trade off between efficiency maximization, principles of fairness, minimization of administrative costs and the innovativeness of the financing scheme, keeping into account the institutional and economic context, the level of urbanization of the land in question, and the contribution to growth that the policy instrument can provide.