Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/77659 
Year of Publication: 
2013
Series/Report no.: 
CESifo Working Paper No. 4280
Publisher: 
Center for Economic Studies and ifo Institute (CESifo), Munich
Abstract: 
Financing productive public capital through distortionary taxes typically creates a trade-off: the optimal investment is determined as a compromise between efficiency-enhancing public investment and perturbing market efficiency, but is never socially optimal. In contrast, such a trade-off can often be avoided if public capital is financed by taxing rents of a fixed production factor, such as land. Here, we provide a macroeconomic version of the Henry George Theorem. Specifically, we prove that the socially optimal level of the public capital stock can be reached by a land rent tax, provided land is a more important production factor than public capital.
Subjects: 
land rent tax
public investment
Henry George Theorem
social optimum
JEL: 
H21
H40
H54
Q24
Document Type: 
Working Paper
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