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The Henry George Theorem in a second-best world

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  • Behrens, Kristian
  • Kanemoto, Yoshitsugu
  • Murata, Yasusada

Abstract

The Henry George Theorem (HGT), or the golden rule of local public finance, states that, in first-best economies, the fiscal surplus, defined as aggregate land rents minus aggregate losses from increasing returns to scale activities, is zero at optimal city sizes. We derive a general second-best HGT in which the fiscal surplus equals the excess burden, expressed as an extended Harberger formula. We then apply our theorem to various settings encompassing urban economics, the new economic geography and local public finance to investigate whether or not a single tax on land rents can raise enough revenue to cover aggregate losses from increasing returns to scale activities.

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Bibliographic Info

Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 8120.

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Date of creation: Nov 2010
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Handle: RePEc:cpr:ceprdp:8120

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Keywords: Henry George Theorem; local public goods; monopolistic competition; optimal city size; second-best economies;

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References

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  5. BEHRENS, Kristian & MURATA, Yasusada, 2007. "City size and the Henry George theorem under monopolistic competition," CORE Discussion Papers 2007063, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
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  7. Kanemoto, Yoshitsugu & Ohkawara, Toru & Suzuki, Tsutomu, 1996. "Agglomeration Economies and a Test for Optimal City Sizes in Japan," Journal of the Japanese and International Economies, Elsevier, vol. 10(4), pages 379-398, December.
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  12. Arnott, Richard J & Stiglitz, Joseph E, 1979. "Aggregate Land Rents, Expenditure on Public Goods, and Optimal City Size," The Quarterly Journal of Economics, MIT Press, vol. 93(4), pages 471-500, November.
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Citations

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Cited by:
  1. Yoshitsugu Kanemoto, 2013. "Pitfalls in estimating “wider economic benefits” of transportation projects," GRIPS Discussion Papers 13-20, National Graduate Institute for Policy Studies.
  2. Kanemoto, Yoshitsugu, 2013. "Second-best cost–benefit analysis in monopolistic competition models of urban agglomeration," Journal of Urban Economics, Elsevier, vol. 76(C), pages 83-92.
  3. Yoshitsugu Kanemoto, 2012. "Cost-Benefit Analysis in Monopolistic Competition Models of Urban Agglomeration," GRIPS Discussion Papers 12-04, National Graduate Institute for Policy Studies.
  4. Kanemoto, Yoshitsugu, 2013. "Evaluating benefits of transportation in models of new economic geography," Economics of Transportation, Elsevier, vol. 2(2), pages 53-62.

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