How Addis Ababa Should Profit From The New River Development Project

Addis Ababa, in Ethiopia, is committing to cleaning up two of the riversides that flow through the city. That might be good, that might be bad – it depends upon how much is to be spent on cleaning up how much. There is actually an optimal level of pollution, or the inverse cleanliness, for a level of economic development. However, there is the one and only correct manner of collecting the benefits of this being done, through land value taxation:

The Addis Ababa, the capital of Ethiopia, on Thursday launches a 29 billion birr (about $1.028 billion) project that aims to develop and rehabilitate two river streams of the city.
The project aims to enhance the well-being of city dwellers by mitigating river flooding and through the creation of public spaces and parks, bicycle paths and walkways along the river sides. The development will run along the two biggest rivers of Addis Ababa stretching 23.8 kilometers and 27.5 kilometers – all the way through the Mountains of Entoto through Akaki River.

Great, excellent. It really is possible to be too clean though – pollution becomes progressively more expensive to clean up and we can indeed get to the point where leaving some of the dirt while spending on other more urgent matters makes more sense.

But how should the city earn back what is spent?

Some the major objectives of the project are:
..
..
.. – Increase the real estate value of current and future property development alongside the river project.

The answer is tax that increased real estate value. This is how Hong Kong makes much of its government revenue. It’s how it pays for its metro system too – land values rise around a metro station, so, when building a new metro station pay for it by taxing those rising land values. This is also how the Battersea Tube extension in London is being paid for.

Economics is a general subject, we reach universal answers with it. Thus the answers in those rich world places, HK and London, are the same in a poor world one like Addis Ababa. Tax the rise in real estate values to pay for what it is that raises the real estate values.

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Grope_of_Big_Horn
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Grope_of_Big_Horn

That’s an interesting claim, which I like, but if true it would put economics on a par with conventional science – the claim being that there are universal principles like taxing land values being a good idea because you can’t move land around, incentives making a difference, and there always being opportunity costs. Universality meaning that we would expect the same principles to be discovered in alien civilisations on other planets, just as we would expect any reasonably advanced civilisation to recognise concepts like stress, strain, the laws of thermodynamics, and prime numbers.

Jonathan Harston
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Jonathan Harston

Does Ethiopia have the rich people to pay the valuable land taxes? We hit that problem just after my time in local government, we tore down the old (cheap) market halls and replaced it with a brand spanking new (expensive) market hall, then wondered why no traders could afford the new (high) rents.

Jerry
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Jerry

A land value tax is the only solution to fund government projects without chronic financing issues and without burdening the economy with taxes on productive work.
See the New Physiocratic League

Shadeburst
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Shadeburst

Lol, the economies of Singapore and Ethiopia are somewhat different. The tax bases are different too. What works in a fully industrialised economy may or may not work in a developing economy on the edge of the bottom decile of PPP. How on EARTH are they going to tax land when they don’t even have a functioning land registry? FP.

timworstall
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timworstall

The government of Ethiopia does in fact own all the land in the country.