The Henry George Theorem in a second-best world |
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| Institution: | 1. Canada Research Chair, Département des Sciences Economiques, Université du Québec à Montréal (UQAM), Canada;2. National Research University, Higher School of Economics, Russia;3. CIRPÉE, Canada;4. CEPR, UK;5. National Graduate Institute for Policy Studies (GRIPS), Japan;6. Graduate School of Public Policy (GraSPP), University of Tokyo, Japan;7. Advanced Research Institute for the Sciences and Humanities (ARISH), Nihon University, Japan;1. School of Economics, Singapore Management University, Singapore;2. Department of Economics, The Chinese University of Hong Kong, Hong Kong;1. Aix-Marseille Université (AMSE et IMéRA), CNRS et EHESS, France;2. CNRS, France;3. Centre d’Economie de la Sorbonne, France;4. CEREC, Université Saint-Louis, Belgium;5. ECARES, Université Libre de Bruxelles, Belgium;6. CEPR, United Kingdom |
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| 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. |
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| Keywords: | Henry George Theorem Second-best economies Optimal city size Monopolistic competition Local public goods |
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