Linus Mattauch, Jan Siegmeier, Ottmar Edenhofer, Felix Creutzig

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

Section: Articles
FinanzArchiv (FA)

Volume 74 () / Issue 3, pp. 340-360 (21)

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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.

Linus Mattauch No current data available.

Jan Siegmeier No current data available.

Ottmar Edenhofer No current data available.

Felix Creutzig No current data available.