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Financing Public Capital through Land Rent Taxation: A Macroeconomic Henry George Theorem

  • Linus Mattauch
  • Jan Siegmeier
  • Ottmar Edenhofer
  • Felix Creutzig

Financing productive public capital through distortionary taxes typically creates a trade-off: the optimal investment is determined as a compromise between efficiency-enhancing public investment and perturbing market efficiency, but is never socially optimal. In contrast, such a trade-off can often be avoided if public capital is financed by taxing rents of a fixed production factor, such as land. Here, we provide a macroeconomic version of the Henry George Theorem. Specifically, we prove that the socially optimal level of the public capital stock can be reached by a land rent tax, provided land is a more important production factor than public capital.

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Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 4280.

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Date of creation: 2013
Date of revision:
Handle: RePEc:ces:ceswps:_4280
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  1. Robert J. Barro, 1988. "Government Spending in a Simple Model of Endogenous Growth," NBER Working Papers 2588, National Bureau of Economic Research, Inc.
  2. 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.
  3. 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.
  4. repec:cup:cbooks:9780521419031 is not listed on IDEAS
  5. Francesco Caselli, 2007. "The Marginal Product of Capital," The Quarterly Journal of Economics, MIT Press, vol. 122(2), pages 535-568, 05.
  6. Jérôme Creel & Gwénaëlle Poilon, 2006. "Is Public Capital Productive in Europe?," Sciences Po publications n°2006-10, Sciences Po.
  7. Guillermo A. Galvo & Laurence J. Kotlikoff & Carlos Alfredo Rodriguez, 1978. "The Incidence of a Tax on Pure Rent: A New Reason for an Old Answer," UCLA Economics Working Papers 125, UCLA Department of Economics.
  8. David E. Bloom & David Canning & Jaypee Sevilla, 2001. "The Effect of Health on Economic Growth: Theory and Evidence," NBER Working Papers 8587, National Bureau of Economic Research, Inc.
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