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Hypergeorgism: When is Rent Taxation as a Remedy for Insufficient Capital Accumulation Socially Optimal?

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  • Ottmar Edenhofer
  • Linus Mattauch
  • Jan Siegmeier

Abstract

Imperfect altruism between generations may lead to insufficient capital accumulation. We study the welfare consequences of taxing the rent on a fixed production factor, such as land, in this setting. We prove that taxing the rent is welfare-enhancing as it increases capital investment. This holds for any tax level and any recycling of the tax revenues except for combinations of high taxes and strongly redistributive recycling. Specific forms of redistribution of the land rent tax - a capital subsidy or a transfer directed at fundless newborns – allow to reproduce the social optimum under parameter restrictions valid for most economies.

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Bibliographic Info

Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 4144.

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Date of creation: 2013
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Handle: RePEc:ces:ceswps:_4144

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Related research

Keywords: land rent tax; overlapping generations; revenue recycling; social optimum; underaccumulation;

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References

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  1. Feldstein, Martin S, 1977. "The Surprising Incidence of a Tax on Pure Rent: A New Answer to an Old Question," Journal of Political Economy, University of Chicago Press, vol. 85(2), pages 349-60, April.
  2. Francesco Caselli & James Feyrer, 2005. "The Marginal Product of Capital," NBER Working Papers 11551, National Bureau of Economic Research, Inc.
  3. Buiter, Willem H, 1988. "Death, Birth, Productivity Growth and Debt Neutrality," Economic Journal, Royal Economic Society, vol. 98(391), pages 279-93, June.
  4. Loewenstein, George & Prelec, Drazen, 1992. "Anomalies in Intertemporal Choice: Evidence and an Interpretation," The Quarterly Journal of Economics, MIT Press, vol. 107(2), pages 573-97, May.
  5. Petrucci, Alberto, 2005. "The Incidence of a Tax on Pure Rent in a Small Open Economy," Economics & Statistics Discussion Papers esdp05025, University of Molise, Dept. EGSeI.
  6. Laibson, David, 1997. "Golden Eggs and Hyperbolic Discounting," The Quarterly Journal of Economics, MIT Press, vol. 112(2), pages 443-77, May.
  7. Romer, Paul M, 1986. "Increasing Returns and Long-run Growth," Journal of Political Economy, University of Chicago Press, vol. 94(5), pages 1002-37, October.
  8. Warren J. Samuels, 2003. "Why the Georgist Movement Has Not Succeeded:," American Journal of Economics and Sociology, Wiley Blackwell, vol. 62(3), pages 629-632, 07.
  9. Willem H. Buiter, 1988. "Debt Neutrality, Professor Vickrey and Henry George's "Single Tax"," NBER Working Papers 2673, National Bureau of Economic Research, Inc.
  10. Hiroyuki Hashimoto & Masaya Sakuragawa, 1998. "Land-Tax, Transfer and Growth in an Endogenously Growing Economy with Overlapping Generations," The Japanese Economic Review, Japanese Economic Association, vol. 49(4), pages 412-425, December.
  11. Richard H. Thaler & Shlomo Benartzi, 2004. "Save More Tomorrow (TM): Using Behavioral Economics to Increase Employee Saving," Journal of Political Economy, University of Chicago Press, vol. 112(S1), pages S164-S187, February.
  12. Shlomo Benartzi & Richard Thaler, 2007. "Heuristics and Biases in Retirement Savings Behavior," Journal of Economic Perspectives, American Economic Association, vol. 21(3), pages 81-104, Summer.
  13. Jerome F. Heavey, 2003. "Comments on Warren Samuels's "Why the Georgist Movement Has Not Succeeded"," American Journal of Economics and Sociology, Wiley Blackwell, vol. 62(3), pages 593-599, 07.
  14. Heijdra, Ben J. & Meijdam, Lex, 2002. "Public investment and intergenerational distribution," Journal of Economic Dynamics and Control, Elsevier, vol. 26(5), pages 707-735, May.
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Cited by:
  1. Linus Mattauch & Jan Siegmeier & Ottmar Edenhofer & Felix Creutzig, 2013. "Financing Public Capital through Land Rent Taxation: A Macroeconomic Henry George Theorem," CESifo Working Paper Series 4280, CESifo Group Munich.

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