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The Henry George Theorem in A Second-Best World

  • Kristian Behrens

    (Departement des Sciences Economiques, Universite du Queebec a Montreal (UQAM), CIRPEE, and CEPR)

  • Yoshitsugu Kanemoto

    (Graduate School of Economics and Graduate School of Public Policy (GraSPP), University of Tokyo, National Graduate Institute for Policy Studies)

  • Yasusada Murata

    (Advanced Research Institute for the Sciences and Humanities (ARISH), Nihon University)

The Henry George Theorem (HGT), or the golden rule of local public finance, states that, in first-best economies, the fiscal surplus, defined as aggregate land rents minus aggregate losses from increasing returns to scale activities, is zero at optimal city sizes. We derive a general second-best HGT in which the fiscal surplus equals the excess burden, expressed as an extended Harberger formula. We then apply our theorem to various settings encompassing urban eco- nomics, the new economic geography and local public finance to investigate whether or not a single tax on land rents can raise enough revenue to cover aggregate losses from increasing returns to scale activities.

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File URL: http://www.cirje.e.u-tokyo.ac.jp/research/dp/2010/2010cf773.pdf
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Paper provided by CIRJE, Faculty of Economics, University of Tokyo in its series CIRJE F-Series with number CIRJE-F-773.

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Length: 30pages
Date of creation: Nov 2010
Date of revision:
Handle: RePEc:tky:fseres:2010cf773
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