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

Mattauch, L.; Siegemeier, J.; Edenhofer, Ottmar; Creutzig, F.

doi:10.1628/fa-2018-0011

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

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Mattauch, L.
External Organizations;

Siegemeier, J.
External Organizations;

/persons/resource/Ottmar.Edenhofer

Edenhofer, Ottmar
Potsdam Institute for Climate Impact Research;

Creutzig, F.
External Organizations;

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Mattauch, L., Siegemeier, J., Edenhofer, O., Creutzig, F. (2018): Financing public capital when rents are back: a macroeconomic Henry George Theorem. - FinanzArchiv - Public Finance Analysis, 74, 3, 340-360.
https://doi.org/10.1628/fa-2018-0011

Cite as: https://publications.pik-potsdam.de/pubman/item/item_22247

Abstract

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.