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Property taxes and dynamic inefficiency: A correction of a “correction”

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  • Hellwig, Martin F.

Abstract

According to Homburg’s (2014) comment on Kim and Lee (1997), a property tax cannot cause dynamic inefficiency in overlapping-generations models with land unless the tax ”confiscates” the entire land rent. But then, Homburg claims, land would be intrinsically worthless and the market for land would be closed. The latter claim is invalid because, as a store of value, land can trade at a positive price even though its net return is negative.

Suggested Citation

  • Hellwig, Martin F., 2020. "Property taxes and dynamic inefficiency: A correction of a “correction”," Economics Letters, Elsevier, vol. 197(C).
    • Handle: RePEc:eee:ecolet:v:197:y:2020:i:c:s0165176520303633
    DOI: 10.1016/j.econlet.2020.109603
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    References listed on IDEAS

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    1. Olivier J Blanchard, 2019. "Public Debt: Fiscal and Welfare Costs in a Time of Low Interest Rates," Policy Briefs PB19-2, Peterson Institute for International Economics.
    2. Olivier Blanchard, 2019. "Public Debt and Low Interest Rates," American Economic Review, American Economic Association, vol. 109(4), pages 1197-1229, April.
    3. Homburg, Stefan, 2014. "Property taxes and dynamic efficiency: A correction," Economics Letters, Elsevier, vol. 123(3), pages 327-328.
    4. Hellwig Martin F., 2022. "Dynamic inefficiency and fiscal interventions in an economy with land and transaction costs," German Economic Review, De Gruyter, vol. 23(1), pages 21-60, February.
    5. Stefan Homburg, 1991. "Interest and Growth in an Economy with Land," Canadian Journal of Economics, Canadian Economics Association, vol. 24(2), pages 450-459, May.
    6. Kim, Kyung-Soo & Lee, Jaewoo, 1997. "Reexamination of dynamic efficiency with taxation on land," Economics Letters, Elsevier, vol. 57(2), pages 169-175, December.
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    More about this item

    Keywords

    Property taxes; Dynamic inefficiency; Overaccumulation of capital; Land;
    All these keywords.

    JEL classification:

    • D9 - Microeconomics - - Micro-Based Behavioral Economics
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation

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