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Financing public capital through land rent taxation: A macroeconomic Henry George Theorem
Linus Mattauch  1@  , Jan Siegmeier  1@  , Ottmar Edenhofer  2@  , Felix Creutzig  1@  
1 : Mercator Research Institute on Global Commons and Climate Change (MCC) Berlin
2 : Technical University of Berlin

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.



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