Intergenerational Fiscal Constitutions: How to Protect Future Generations Using Land Taxes and Federalism

37 Pages Posted: 20 Jul 2001 Last revised: 22 Oct 2010

See all articles by John P. Conley

John P. Conley

Vanderbilt University - College of Arts and Science - Department of Economics

Antonio Rangel

California Institute of Technology

Date Written: July 2001

Abstract

This paper studies how to design a fiscal constitution that, by capitalizing intergenerational spillovers into land values, is able to protect future generations from expropriation and to generate optimal investment in intergenerational public goods. In particular, we study how to accomplish these goals by changing two dimensions of the fiscal constitution: (1) the level of government to which different types of intergenerational public goods are assigned, and (2) the tax base of the different jurisdictions. We show that the instruments required to generate capitalization of the intergenerational spillovers depend on the type of the spillover. Land taxation is the essential instrument for policies that mostly generate fiscal spillovers, such as debt and public infrastructure. By contrast, interjurisdictional competition is the essential instrument for policies that mostly generate direct spillovers, such as irreversible environmental damages. Furthermore, we show that it is possible to design a fiscal constitution that generates full capitalization of fiscal spillovers, but in general, not one that generates full capitalization of direct spillovers.

Suggested Citation

Conley, John P. and Rangel, Antonio, Intergenerational Fiscal Constitutions: How to Protect Future Generations Using Land Taxes and Federalism (July 2001). NBER Working Paper No. w8394, Available at SSRN: https://ssrn.com/abstract=277304

John P. Conley (Contact Author)

Vanderbilt University - College of Arts and Science - Department of Economics ( email )

Box 1819 Station B
Nashville, TN 37235
United States

Antonio Rangel

California Institute of Technology ( email )

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