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In 1836, the state of Indiana set out to build a Mammoth system of canals, railroads, and turnpikes following a decade of intense debate in which sectional rivalries prevented any state action. This paper investigates the role played by the adoption of an ad valorem property tax in ameliorating the sectional rivalries and coordinating the costs of financing the transportation system with the taxes levied to finance it. It also traces the rise and fall of land values in the state between 1835 and 1842, estimating the effect of internal improvement projects on land values. [Copyright &y& Elsevier]