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

Linus Mattauch, Jan Siegmeier, Ottmar Edenhofer and Felix Creutzig (creutzig@mcc-berlin.net)

No 4280, CESifo Working Paper Series from CESifo

Abstract: 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.

Keywords: land rent tax; public investment; Henry George Theorem; social optimum (search for similar items in EconPapers)
JEL-codes: H21 H40 H54 Q24 (search for similar items in EconPapers)
Date: 2013
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (26)

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