GRIPS 政策研究センター Policy Research Center

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Aug 20, 2014 Report No:14-11

The Henry George Theorem in a second-best world

Author
  • Kristian BehrensUniversité du Québec à Montréal (UQAM)
  • Yoshitsugu KanemotoGRIPS
  • Yasusada MurataNihon University
Field Economics
Language English
Abstract

The Henry George Theorem (HGT) states that, in first-best economies, the fiscal surplus of a city government that finances the Pigouvian subsidies for agglomeration externalities and the costs of local public goods by a 100% tax on land is zero at optimal city sizes. We extend the HGT to distorted economies where product differentiation and increasing returns are the sources of agglomeration economies and city governments levy property taxes. Without relying on specific functional forms, we derive a second-best HGT that relates the fiscal surplus to the excess burden expressed as an extended Harberger formula.

Keywords Henry George Theorem; second-best economies; optimal city size; monopolistic competition; local public goods
attachment 14-11.pdf