Hypergeorgism: When is Rent Taxation as a Remedy for Insufficient Capital Accumulation Socially Optimal?

34 Pages Posted: 14 Mar 2013

See all articles by Ottmar Edenhofer

Ottmar Edenhofer

Potsdam Institute for Climate Impact Research (PIK); Mercator Research Institute on Global Commons and Climate Change (MCC); Technische Universität Berlin (TU Berlin)

Linus Mattauch

Mercator Research Institute on Global Commons and Climate Change (MCC)

Jan Siegmeier

Technische Universität Berlin (TU Berlin)

Date Written: February 18, 2013

Abstract

Imperfect altruism between generations may lead to insufficient capital accumulation. We study the welfare consequences of taxing the rent on a fixed production factor, such as land, in this setting. We prove that taxing the rent is welfare-enhancing as it increases capital investment. This holds for any tax level and any recycling of the tax revenues except for combinations of high taxes and strongly redistributive recycling. Specific forms of redistribution of the land rent tax – a capital subsidy or a transfer directed at fundless newborns – allow to reproduce the social optimum under parameter restrictions valid for most economies.

Keywords: land rent tax, overlapping generations, revenue recycling, social optimum, underaccumulation

JEL Classification: H210, H220, H230, Q240

Suggested Citation

Edenhofer, Ottmar and Mattauch, Linus and Siegmeier, Jan, Hypergeorgism: When is Rent Taxation as a Remedy for Insufficient Capital Accumulation Socially Optimal? (February 18, 2013). CESifo Working Paper Series No. 4144. Available at SSRN: https://ssrn.com/abstract=2232659

Ottmar Edenhofer

Potsdam Institute for Climate Impact Research (PIK) ( email )

P.O. Box 601203
14412 Potsdam, Brandenburg
Germany

Mercator Research Institute on Global Commons and Climate Change (MCC)

Torgauer Straße 12-15
Berlin, 10829
Germany

Technische Universität Berlin (TU Berlin)

Straße des 17
Juni 135
Berlin, 10623
Germany

Linus Mattauch

Mercator Research Institute on Global Commons and Climate Change (MCC) ( email )

Torgauer Straße 12-15
Berlin, 10829
Germany

Jan Siegmeier (Contact Author)

Technische Universität Berlin (TU Berlin) ( email )

Straße des 17
Juni 135
Berlin, 10623
Germany

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