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Ramsey meets Thünen: the impact of land taxes on economic development and land conservation

Matthias Kalkuhl and Ottmar Edenhofer ()

International Tax and Public Finance, 2017, vol. 24, issue 2, No 8, 350-380

Abstract: Abstract Land taxes can increase production in the manufacturing sector and enhance land conservation at the same time, which can lead to overall macroeconomic growth. Existing research emphasizes the non-distorting properties of land taxes (when fixed factors are taxed) as well as growth-enhancing impacts (when asset portfolios are shifted to reproducible capital). This paper furthers the neoclassical perspective on land taxes by endogenizing land allocation decisions in a multi-sector growth model. Based on von Thünen’s observation, agricultural land is created from wilderness through conversion and cultivation, both of which are associated with costs. In the steady state of our general equilibrium model, land taxes not only may reduce land consumption (associated with environmental benefits) but may also affect overall economic output, while leaving wages and interest rates unaffected. When labor productivity is higher in the manufacturing than in the agricultural sector and agricultural and manufactured goods are substitutes (or the economy is open to world trade), land taxes increase aggregate economic output. There is a complex interplay of conservation policy, technological change and land taxes, depending on consumer preferences, sectoral labor productivities and openness-to-trade. Our model introduces a new perspective on land taxes in current policy debates on development, tax reforms as well as forest conservation.

Keywords: Structural shift; Structural change; REDD; Henry George; Forest conservation; Sustainability; Johann Heinrich von Thünen (search for similar items in EconPapers)
JEL-codes: H22 H23 O41 O44 Q32 Q56 (search for similar items in EconPapers)
Date: 2017
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DOI: 10.1007/s10797-016-9403-6

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Handle: RePEc:kap:itaxpf:v:24:y:2017:i:2:d:10.1007_s10797-016-9403-6