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Property Taxes and Dynamic Inefficiency: A Correction of a "Correction"

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  • Martin F. Hellwig

    (Max Planck Institute for Research on Collective Goods, Bonn)

Abstract

According to Homburg’s (2014) comment on Kim and Lee (1997), an ad-valorem property tax on land cannot cause dynamic ineffciency of equilibrium allocations in an overlapping-generations model unless the tax is "confiscatory", i.e., equal to or greater than land rents. With such a tax, Homburg claims, land would be intrinsically worthless and the market for land would be closed. The latter claims are invalid because, as a store of value, land can be traded at a positive price even if the net rate of return on land is negative.

Suggested Citation

  • Martin F. Hellwig, 2020. "Property Taxes and Dynamic Inefficiency: A Correction of a "Correction"," Discussion Paper Series of the Max Planck Institute for Research on Collective Goods 2020_15, Max Planck Institute for Research on Collective Goods.
    • Handle: RePEc:mpg:wpaper:2020_15
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    References listed on IDEAS

    as
    1. Olivier Blanchard, 2019. "Public Debt and Low Interest Rates," American Economic Review, American Economic Association, vol. 109(4), pages 1197-1229, April.
    2. Hellwig Martin F., 2022. "Dynamic inefficiency and fiscal interventions in an economy with land and transaction costs," German Economic Review, De Gruyter, vol. 23(1), pages 21-60, February.
    3. Kim, Kyung-Soo & Lee, Jaewoo, 1997. "Reexamination of dynamic efficiency with taxation on land," Economics Letters, Elsevier, vol. 57(2), pages 169-175, December.
    4. Olivier J Blanchard, 2019. "Public Debt: Fiscal and Welfare Costs in a Time of Low Interest Rates," Policy Briefs PB19-2, Peterson Institute for International Economics.
    5. Homburg, Stefan, 2014. "Property taxes and dynamic efficiency: A correction," Economics Letters, Elsevier, vol. 123(3), pages 327-328.
    6. Stefan Homburg, 1991. "Interest and Growth in an Economy with Land," Canadian Journal of Economics, Canadian Economics Association, vol. 24(2), pages 450-459, May.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Property taxes; dynamic inefficiency; overaccumulation of capital; land;
    All these keywords.

    JEL classification:

    • D9 - Microeconomics - - Micro-Based Behavioral Economics
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation

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