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Discussion Paper Details

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Title: The Henry George Theorem in a second-best world

Author(s): Kristian Behrens, Yoshitsugu Kanemoto and Yasusada Murata

Publication Date: November 2010

Keyword(s): Henry George Theorem, local public goods, monopolistic competition, optimal city size and second-best economies

Programme Area(s): International Trade and Regional Economics

Abstract: The Henry George Theorem (HGT), or the golden rule of local public finance, states that, in first-best economies, the fiscal surplus, defined as aggregate land rents minus aggregate losses from increasing returns to scale activities, is zero at optimal city sizes. We derive a general second-best HGT in which the fiscal surplus equals the excess burden, expressed as an extended Harberger formula. We then apply our theorem to various settings encompassing urban economics, the new economic geography and local public finance to investigate whether or not a single tax on land rents can raise enough revenue to cover aggregate losses from increasing returns to scale activities.

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Bibliographic Reference

Behrens, K, Kanemoto, Y and Murata, Y. 2010. 'The Henry George Theorem in a second-best world'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=8120