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

Martin F. Hellwig ()
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Martin F. Hellwig: Max Planck Institute for Research on Collective Goods, Bonn

No 2020_15, Discussion Paper Series of the Max Planck Institute for Research on Collective Goods from Max Planck Institute for Research on Collective Goods

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.

Keywords: Property taxes; dynamic inefficiency; overaccumulation of capital; land (search for similar items in EconPapers)
JEL-codes: D9 E62 H21 (search for similar items in EconPapers)
Date: 2020-06
New Economics Papers: this item is included in nep-acc, nep-mac and nep-ure
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Journal Article: Property taxes and dynamic inefficiency: A correction of a “correction” (2020)
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Persistent link: https://EconPapers.repec.org/RePEc:mpg:wpaper:2020_15

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