Fiscal and trade distorting effects of capital gains tax on land sales - empirical evidence from agricultural land market in Finland
Capital gains taxes are important sources of government income in particular in high tax Scandinavian countries. These taxes, nevertheless, likely distort the market and resource allocations through so called “lock-in” effect by discouraging trade transactions that would trigger the tax payments. When it comes to agricultural land, the lock-in effect implies that, along the structural development, the land ownership and active farming gradually deviate from each other and land tenancy increases.