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Land tax and economic growth under credit market imperfection

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  • Masaya Sakuragawa
  • Yukie Sakuragawa

Abstract

We study the general equilibrium effects of land taxation on economic growth by extending the model developed by Kiyotaki and Moore (1997) to an endogenous growth model, where land is used not only as an input of production but also as collateral. Land taxation tends to hamper economic growth through the credit‐contraction effect, but the overall direction on economic growth depends on the redistribution scheme of the tax revenue. Surprisingly, we show that if the tax revenue is fully refunded to entrepreneurs, the economy grows faster than a no‐taxation economy. We calibrate our model and show that if taxation on land is raised by 1 percent, the land price initially falls by approximately 9.09 percent, while the economy grows faster by 0.6%.

Suggested Citation

  • Masaya Sakuragawa & Yukie Sakuragawa, 2007. "Land tax and economic growth under credit market imperfection," International Journal of Economic Theory, The International Society for Economic Theory, vol. 3(2), pages 131-146, June.
    • Handle: RePEc:bla:ijethy:v:3:y:2007:i:2:p:131-146
    DOI: 10.1111/j.1742-7363.2007.00051.x
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    Cited by:

    1. Masaya Sakuragawa & Yukie Sakuragawa, 2009. "Land Price, Collateral And Economic Growth," The Japanese Economic Review, Japanese Economic Association, vol. 60(4), pages 473-489, December.

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