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A Silver Rule for Financing Local Transport Facilities

Listed author(s):
  • Robert BICHSEL
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    According to the Henry George Theorem (HGT), the cost of a pure local public good can be covered through a tax on related land-rents. As we show in this paper, this general proposition does not apply to transport facilities. Nonetheless, even if the "Golden Rule" does not apply in this context, land value and transport facilities are related. We show that (i) an improvement of the transport facilities does have a positive effect onto land value when taking into account the effect on the equilibrium city size; (ii) a simple relationship, similar to the HGT, does exist between the cost of optimal transport facilities and aggregate land rents; (iii) any exogenous shock reducing travel costs leads to higher optimal spending in transport facilities and higher land value. This suggests that associated changes in land value could, in a way that we define, subsidize optimal improvements in transport facilities land rents are related to spending in transport facilities.

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    Paper provided by Université de Lausanne, Faculté des HEC, DEEP in its series Cahiers de Recherches Economiques du Département d'Econométrie et d'Economie politique (DEEP) with number 9902.

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    Length: 24 pages
    Date of creation: Feb 1999
    Handle: RePEc:lau:crdeep:9902
    Contact details of provider: Postal:
    Université de Lausanne, Faculté des HEC, DEEP, Internef, CH-1015 Lausanne

    Phone: ++41 21 692.33.20
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    1. Arnott, Richard J & Stiglitz, Joseph E, 1981. "Aggregate Land Rents and Aggregate Transport Costs," Economic Journal, Royal Economic Society, vol. 91(362), pages 331-347, June.
    2. D B Lee & C P Averous, 1973. "Land use and transportation: basic theory," Environment and Planning A, Pion Ltd, London, vol. 5(4), pages 491-502, April.
    3. Richard J. Arnott & Joseph E. Stiglitz, 1979. "Aggregate Land Rents, Expenditure on Public Goods, and Optimal City Size," The Quarterly Journal of Economics, Oxford University Press, vol. 93(4), pages 471-500.
    4. Kanemoto, Yoshitsugu, 1980. "Theories of urban externalities," MPRA Paper 24614, University Library of Munich, Germany.
    5. Flatters, Frank & Henderson, Vernon & Mieszkowski, Peter, 1974. "Public goods, efficiency, and regional fiscal equalization," Journal of Public Economics, Elsevier, vol. 3(2), pages 99-112, May.
    6. Getz, Malcolm, 1975. "A model of the impact of transportation investment on land rents," Journal of Public Economics, Elsevier, vol. 4(1), pages 57-74, February.
    7. D B Lee Jr. & C P Averous, 1973. "Land Use and Transportation: Basic Theory," Environment and Planning A, , vol. 5(4), pages 491-502, August.
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