The Henry George Theorem, Capitalization Hypothesis, And Interregional Equalization: A Synthesis

ABSTRACT The purpose of this paper is first in provide an explicit distinction between the Henry George theorem and the capitalization hypothesis, as synthesized with the Samuelson condition in a simple setting of a region with and without fiscal transfers. Secondly, in a multi‐regional setting with free migration and fiscal transfers, the arguments are explored and conditions derived for the confiscation of capitalized land value. It is clearly shown that the Henry George theorem and the capitalization hypothesis are completely different from a theoretical point of view, and that in special case the later might be interpreted as the bridge between the conditions cannot be satisfied simultaneously. The condition for full capitalization can rarely be met in reality. Hence marginal rents would not be an accurate measure of the benefits of public investments. Some confiscation is necessary not only to prevent unexpected income redistribution but also to attain the optimal population distribution through fiscal transteps. In the case of the use of fiscal transfers to achieve an optinal allocation of population, rent lends to be high in exploiled regions and low in subsidized regions, relative to the level of public goods that is provided. The redistribution of the fiscal resources gained by the confiscation is examined as well.