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

University of Oxford; Potsdam Institute of Climate Impact Research; Technische Universität Berlin (TU Berlin)

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 or http://dx.doi.org/10.2139/ssrn.2284745

Linus Mattauch (Contact Author)

University of Oxford ( email )

Mansfield Road
Oxford, Oxfordshire OX1 4AU
United Kingdom

Potsdam Institute of Climate Impact Research ( email )

Technische Universität Berlin (TU Berlin) ( email )

Straße des 17
Juni 135
Berlin, 10623
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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