Program > Papers by author > Creutzig Felix

Financing productive public capital through distortionary taxes typically creates a trade-off between efficiency-enhancing public investment and perturbing market efficiency. In contrast, such a trade-off may be avoided if public capital is financed by taxing the rent of a fixed production factor, such as land. We prove that the socially optimal level of the public capital stock can be financed by a land rent tax, provided that the income share of land exceeds the public investment requirement. This result can be considered a macroeconomic version of the Henry George Theorem from urban economics. It holds for both neoclassical and endogenous growth.