You can now read 10 articles a month for free. Read as much as you want anywhere and anytime for just 99¢.

EDWARD L. GLAESER

Excitement deserves a tax break

I’D LIKE to see a little less transparency in banking. I don’t mean that I’d like more confusing bank balance sheets or fine print on mortgages; rather, I’d prefer to spend a little less time looking through bank windows when I walk through greater Boston.

Many people seem to share my preference for shops and cafes relative to bank facades, which is why 1,400 people have now signed a petition opposing Capital One’s plans to replace Beacon Hill’s Charles Street Market. But we don’t need to ban banks, or to over-regulate urban space. What we should do instead is find a gentler way to nudge landlords to welcome in more exciting tenants.

Continue reading below

It may seem odd that banks are significantly expanding their retail space in an age of electronic finance, but the surge in bank retailing reflects the large role of financial services in our lives, and the continuing power of physical presence as a marketing tool. Despite the melee of online influences, customers still notice when they walk by a particular bank day after day. Paradoxically, the ability to bank online may have made us even more enmeshed with our financial institutions, which may have also increased the demand for old-fashioned face-to-face banking.

But while we needn’t demonize the convenience and competition provided by retail banks, we also want urban spaces to be vibrant and interesting enough to excite everyday passersby and attract tourists. A ground-floor retail store does more than just cater to that establishment’s customers - it adds to the entire neighborhood. When mall developers rent space, they choose stores that will make their entire little economic ecosystem hum, and I don’t know any thriving malls that have allocated most of their prime retail space to banks.

Unfortunately, a local government’s main tool for shaping urban space is permitting, which is clumsy at best and at worst the NIMBYist’s weapon against urban change. Mall developers, in contrast, don’t just permit or reject. They lower prices for stores that will attract customers to the mall. Cities can do the same by tinkering with the property tax code to encourage more exciting stores.

Continue reading it below

Today’s tax rules do the opposite: Property owners receive lower bills if they keep a plot empty than if they build an exciting structure. This gets things backwards. If we want to encourage good development rather than empty eyesores, we should tax land, as the American economist Henry George argued a century ago. And we should have higher taxes on empty or underutilized space in prime locations, to encourage property owners to build something that will contribute to the neighborhood.

But once we move beyond taxing empty lots more, to giving tax breaks to exciting retail spaces, the policy challenge becomes thornier. You and I may not agree about the relative contributions of an Irish pub or a corner bookstore or even a bank. Do we really want government bureaucrats to be making highly personal decisions about which retail spaces deserve tax cuts?

One possibility is to crowd-source decisions about taste. On an experimental basis, we could set aside a pool of tax reductions, paid for by the extra tax on vacant lots. We would then allow Bostonians to vote online for the ground floor establishments that excite them. The tax reduction funds would be allocated based on online enthusiasm, which should create a tax advantage for popular retailers, like the Charles Street Market. And - if people really don’t like banks - a tax disadvantage for retail banking.

The idea has implementation challenges, which is why it should be used initially with small amounts of money on an experimental basis. But planning and zoning rules were once a novelty, too; cities have modified that process over time. Similarly, if this tax plan seems to be working it can be fine-tuned and expanded.

While we don’t want to ban retail banking, we need to encourage lively urban spaces that will make pedestrians enthusiastic. The best way to do this is with incremental financial incentives, not command-and-control building and use restrictions. Boston has been on the forefront of crowd-sourced government in other areas - like the app that tells the city which potholes need fixing. The city should also try crowd-sourcing a tax cut for exciting ground-floor spaces.

Edward L. Glaeser, a professor of economics at Harvard University, is author of “The Triumph of the City.’’ His column appears regularly in the Globe.
Loading comments...

You have reached the limit of 10 free articles in a month

Stay informed with unlimited access to Boston’s trusted news source.

  • High-quality journalism from the region’s largest newsroom
  • Convenient access across all of your devices
  • Today’s Headlines daily newsletter
  • Subscriber-only access to exclusive offers, events, contests, eBooks, and more
  • Less than 25¢ a week