Property Taxes and Dynamic Inefficiency: A Correction of a 'Correction'
10 Pages Posted: 7 Jul 2020
Date Written: June 25, 2020
According to Homburg’s (2014) comment on Kim and Lee (1997), an ad-valorem property tax on land cannot cause dynamic ineffciency of equilibrium allocations in an overlapping-generations model unless the tax is "confiscatory", i.e., equal to or greater than land rents. With such a tax, Homburg claims, land would be intrinsically worthless and the market for land would be closed. The latter claims are invalid because, as a store of value, land can be traded at a positive price even if the net rate of return on land is negative.
Keywords: Property taxes, dynamic inefficiency, overaccumulation of capital, land
JEL Classification: D9, E62, H21
Suggested Citation: Suggested Citation