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

21 Pages Posted: 26 Jun 2013

See all articles by Linus Mattauch

Linus Mattauch

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

Jan Siegmeier

Technische Universität Berlin (TU Berlin)

Ottmar Edenhofer

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

Felix Creutzig

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

Date Written: June 25, 2013

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

JEL Classification: H210, H400, H540, Q240

Suggested Citation

Mattauch, Linus and Siegmeier, Jan and Edenhofer, Ottmar and Creutzig, Felix, Financing Public Capital Through Land Rent Taxation: A Macroeconomic Henry George Theorem (June 25, 2013). CESifo Working Paper Series No. 4280. Available at SSRN: https://ssrn.com/abstract=2284745

Linus Mattauch (Contact Author)

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

Torgauer Straße 12-15
Berlin, 10829
Germany

Jan Siegmeier

Technische Universität Berlin (TU Berlin) ( email )

Straße des 17
Juni 135
Berlin, 10623
Germany

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

Felix Creutzig

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

Torgauer Straße 12-15
Berlin, 10829
Germany

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