The Henry George Theorem in a Second-Best World

32 Pages Posted: 29 Nov 2010

See all articles by Kristian Behrens

Kristian Behrens

University of Quebec at Montreal (UQAM) - Department of Economics

Yoshitsugu Kanemoto

University of Tokyo - Faculty of Economics

Yasusada Murata

Nihon University

Date Written: November 2010

Abstract

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 economics, 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.

Keywords: Henry George Theorem, local public goods, monopolistic competition, optimal city size, second-best economies

JEL Classification: D43, R12, R13

Suggested Citation

Behrens, Kristian and Kanemoto, Yoshitsugu and Murata, Yasusada, The Henry George Theorem in a Second-Best World (November 2010). CEPR Discussion Paper No. DP8120, Available at SSRN: https://ssrn.com/abstract=1714892

Kristian Behrens (Contact Author)

University of Quebec at Montreal (UQAM) - Department of Economics ( email )

P.O. Box 8888, Downtown Station
Montreal, Quebec H3C 3P8
Canada

Yoshitsugu Kanemoto

University of Tokyo - Faculty of Economics ( email )

7-3-1 Hongo, Bunkyo-ku
Tokyo 113-0033
Japan
81-3-038-1221-11 (Phone)

Yasusada Murata

Nihon University ( email )

Tokyo
Japan

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