I think one purpose of exaction is to let the developer pay for externalities generated by the project, which are not priced into land price.  Any other purposes?  Another purpose might be related to local government's more or less monopoly of urban planning.  Although land market may be competitive, the developer needs to obtain planning permission from local government.  In this sense, exaction might be seen as part of the payment for the development right in the municipality.

In my country it is for infrastructure needed for buildings to function, for cities to function, and for future development as well .

I want to thank Frederick and Visnja for their answers.

Frederick appears to be saying that exactions are a tax on future externalities. Presumably that would be ugliness, noise, congestion, air pollution, or water pollution. OK, I can understand that. Frederick also says essentially that governments tax developers because they can. This means that the governments will discourage development for no good reason.

Visnja indicates that exactions are a user charge for infrastructure. I would ask why the future of property taxes will not pay for this needed infrastructure. Is that because the timing of payments cannot be accommodated by the public sector? Isn't that what municipal bonds do: get funds now and pay for it over time?

Hi Peter F. Colwell , the purpose of exactions is for fiscal sustainability and economic growth. The notion of fiscal sustainability is a field of analysis and recommendations of international agencies and many scholars. However, fiscal sustainability analyzed in most of the literature refers to the general control of public finances, especially in relation to public indebtedness. The answer to this question is brought by the Territorial Engineering that innovates in this field. It requires evaluating the fiscal sustainability of territorial programs and component projects. On fiscal sustainability, I recommend the following classic titles:

- BLANCHARD, O. J. (1990). Suggestions for a New Set of Fiscal Indicators, OECD Economics Department Working Papers, No. 79, OECD Publishing.

- BUITER, W. H. (2004). Fiscal Sustainability. Paper presented at the Egyptian Center for Economic Studies in Cairo on 19 October 2003. Revised in 2004. London: European Bank for Reconstruction and Development.

- BURNSIDE, C. (2005). Fiscal Sustainability in Theory and Practice: A Handbook. Washington: The World Bank.

- CHALK, N, R. HEMMING (2000). Assessing Fiscal Sustainability in Theory and Practice. In: Banca d’Italia (2000): Fiscal Sustainability. Rome: Banca d´Italia. Web Document: http://www.bancaditalia.it/studiricerche/convegni/atti/fiscal_sust;internal&action=_setlanguage.action?LANGUAGE=en

- INTERNATIONAL MONETARY FUND (2002). Assessing Sustainability, International Monetary Fund, Washington, DC. Also available at: http://www.imf.org/external/np/pdr/sus/2002/eng/052802.pdf.

- POLITO V, M WICKENS (2005). Measuring Fiscal Sustainability. Centre for Dynamic Macroeconomic Analysis Conference Papers 2005. Castlecliffe: University Of St Andrews.

- TER-MINASSIAN T, M ALLEN (2004). Public Investment and Fiscal Policy. Washington: The International Monetary Fund.

- VICKERMAN R (2007). Recent Evolution of Research into the Wider Economic Benefits of Transport Infrastructure Investments. Discussion Paper N. 2007-9. Boston OECD/ITF Joint Transport Research Centre.

On economic growth:

- AGHION P, S N DURLAUF (2005): Handbook of Economic Growth. 2 vols. Amsterdam: Elsevier

- ALESINA A, R PEROTTI (1994): The Political Economy of Growth: A Critical Survey of the Recent Literature. World Bank Economic Review. 8, 3: 351-371

- BARRO R J, SALA-I-MARTIN X (2004): Economic Growth. 2nd Edition. Cambridge (Massachusetts,Estados Unidos): The MIT Press.

- EASTERLY W, R LEVINE (2001): What have we learned from a decade of empirical research on growth? It's Not Factor Accumulation: Stylized Facts and Growth Models. World Bank Economic Review. 15: 177 - 219.

- KLENOW P J, A RODRÍGUEZ-CLARE (1997): Economic growth: A review essay. Journal of Monetary Economics 40,3:597-6

- PRITCHETT L (2000): Understanding Patterns of Economic Growth: Searching for Hills among Plateaus, Mountains, and Plains. World Bank Economic Review. 14: 221 - 250.

- ROMER P M (1990): Endogenous Technological Change. Part 2: The Problem of Development: A Conference of the Institute for the Study of Free Enterprise Systems. The Journal of Political Economy, 98 (5): S71-S102

- VAMVAKIDIS A (1998): Regional Integration and Economic Growth. World Bank Economic Review, May 1998; 12: 251 – 270.

- WONG P K, Y P HO and E AUTIO (2005). Entrepreneurship, Innovation and Economic Growth: Evidence from GEM data. Small Business