Financing public capital when rents are back: a macroeconomic Henry George Theorem

Date: 25 June 2018

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 Ottmar Edenhofer Jan Siegmeier Felix Creutzig

Economics of Sustainability

Economics of Sustainability

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


Type: paper

Mattauch, L., Siegmeier, J., Edenhofer, O. and Creutzig, F. (2018). 'Financing Public Capital When Rents Are Back: A Macroeconomic Henry George Theorem'. Finanzarchiv/public finance analysis. online first DOI:10.1628/fa-2018-0011


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