Property Taxes and Dynamic Inefficiency: A Correction of a 'Correction'

10 Pages Posted: 7 Jul 2020

See all articles by Martin F. Hellwig

Martin F. Hellwig

Max Planck Institute for Research on Collective Goods; University of Bonn - Department of Economics; European Corporate Governance Institute (ECGI)

Date Written: June 25, 2020

Abstract

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

Hellwig, Martin F., Property Taxes and Dynamic Inefficiency: A Correction of a 'Correction' (June 25, 2020). MPI Collective Goods Discussion Paper, No. 2020/15, Available at SSRN: https://ssrn.com/abstract=3635379 or http://dx.doi.org/10.2139/ssrn.3635379

Martin F. Hellwig (Contact Author)

Max Planck Institute for Research on Collective Goods ( email )

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Germany

University of Bonn - Department of Economics

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D-53113 Bonn
Germany

European Corporate Governance Institute (ECGI) ( email )

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Belgium

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