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Cover of: Financing Public Capital When Rents Are Back: A Macroeconomic Henry George Theorem
Linus Mattauch, Jan Siegmeier, Ottmar Edenhofer, Felix Creutzig

Financing Public Capital When Rents Are Back: A Macroeconomic Henry George Theorem

Section: Articles
Volume 74 (2018) / Issue 3, pp. 340-360 (21)
Published 03.09.2018
DOI 10.1628/fa-2018-0011
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  • 10.1628/fa-2018-0011
Summary
By taxing rents, governments can avoid a trade-off between productivity-enhancing public investment and efficiency losses from raising funds. However, it is unclear whether the rents present in a growing economy are sufficient to finance the socially optimal investment. We prove that the social optimum can be attained if the income share from a fixed factor, such as land, exceeds the public investment requirement. We thus translate the Henry George Theorem from urban economics to neoclassical and endogenous growth settings: here, the socially optimal land rent tax rate is below 100 %. Our finding may address the underfunding of national infrastructure investments.