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The Incidence of a Tax on Pure Rent in a Small Open Economy

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  • Petrucci, Alberto

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Abstract

This paper analyzes the effects of a land rent tax on capital formation and foreign investment in a life-cycle small open economy with endogenous labor-leisure choices. The consequences of land taxation critically depend on how the tax proceeds are used by the government. A land tax depresses capital formation, crowds out foreign investment and increases national wealth and consumption when the land tax revenues are distributed as lump-sum payments. If the proceeds from land taxation are used to finance unproductive government expenditure, the land tax will be neutral in its effects on the capital stock, nonhuman wealth and labor. When the tax revenues are used to reduce labor taxes, the land rent tax spurs nonhuman wealth accumulation and ambiguously affects the capital stock and labor.

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Bibliographic Info

Paper provided by University of Molise, Dept. EGSeI in its series Economics & Statistics Discussion Papers with number esdp05025.

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Length: 31 pages
Date of creation: 12 Jul 2005
Date of revision:
Handle: RePEc:mol:ecsdps:esdp05025

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Keywords: Land Taxation; Labor Supply; Capital Accumulation; Overlapping generations.;

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References

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  1. Willem H. Buiter, 1988. "Debt Neutrality, Professor Vickrey and Henry George's "Single Tax"," NBER Working Papers 2673, National Bureau of Economic Research, Inc.
  2. Fane, George, 1984. "The Incidence of a Tax on Pure Rent: The Old Reason for the Old Answer," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 92(2), pages 329-33, April.
  3. 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, Japanese Economic Association, vol. 49(4), pages 412-425, December.
  4. Blanchard, Olivier J, 1985. "Debt, Deficits, and Finite Horizons," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 93(2), pages 223-47, April.
  5. Calvo, Guillermo A & Kotlikoff, Laurence J & Rodriguez, Carlos Alfredo, 1979. "The Incidence of a Tax on Pure Rent: A New (?) Reason for an Old Answer," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 87(4), pages 869-74, August.
  6. Chamley, Christophe & Wright, Brian D., 1987. "Fiscal incidence in an overlapping generations model with a fixed asset," Journal of Public Economics, Elsevier, Elsevier, vol. 32(1), pages 3-24, February.
  7. Kangoh Lee, 2003. "Should land and capital be taxed at a uniform rate?," Canadian Journal of Economics, Canadian Economics Association, Canadian Economics Association, vol. 36(2), pages 350-372, May.
  8. Kotlikoff, Laurence J. & Summers, Lawrence H., 1987. "Tax incidence," Handbook of Public Economics, Elsevier, in: A. J. Auerbach & M. Feldstein (ed.), Handbook of Public Economics, edition 1, volume 2, chapter 16, pages 1043-1092 Elsevier.
  9. 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, University of Chicago Press, vol. 85(2), pages 349-60, April.
  10. Ihori, Toshihiro, 1990. "Economic effects of land taxes in an inflationary economy," Journal of Public Economics, Elsevier, Elsevier, vol. 42(2), pages 195-211, July.
  11. Jonathan Eaton, 1984. "Foreign-Owned Land," NBER Working Papers 1512, National Bureau of Economic Research, Inc.
  12. Mills, David E., 2001. "Land value taxation," Regional Science and Urban Economics, Elsevier, Elsevier, vol. 31(6), pages 765-770, November.
  13. Bentick, Brian L, 1979. "The Impact of Taxation and Valuation Practices on the Timing and Efficiency of Land Use," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 87(4), pages 859-68, August.
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Cited by:
  1. Marko Köthenbürger & Panu Poutvaara, 2007. "Rent Taxation and its Intertemporal Welfare Effects in a Small Open Economy," CESifo Working Paper Series 2158, CESifo Group Munich.
  2. Ottmar Edenhofer & Linus Mattauch & Jan Siegmeier, 2013. "Hypergeorgism: When is Rent Taxation as a Remedy for Insufficient Capital Accumulation Socially Optimal?," CESifo Working Paper Series 4144, CESifo Group Munich.
  3. Coulson, N. Edward & Li, Herman, 2010. "The effect of risk on the effect of a land tax: A simulation," Regional Science and Urban Economics, Elsevier, Elsevier, vol. 40(6), pages 530-537, November.
  4. Petrucci, Alberto, 2006. "Wealth Accumulation and Growth in a Specific-Factors Model of Trade and Finance," Economics & Statistics Discussion Papers, University of Molise, Dept. EGSeI esdp06029, University of Molise, Dept. EGSeI.

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