hide
Free keywords:
Property taxes, dynamic inefficiency, overaccumulation of capital, land
JEL:
D9 - Intertemporal Choice
JEL:
E62 - Fiscal Policy
JEL:
H21 - Efficiency; Optimal Taxation
Abstract:
According to Homburg’s (2014) comment on Kim and Lee (1997), an ad-valorem property tax on land cannot cause dynamic ineffciency of equilibrium allocations in an overlapping-generations model unless the tax is "confiscatory", i.e., equal to or greater than land rents. With such a tax, Homburg claims, land would be intrinsically worthless and the market for land would be closed. The latter claims are invalid because, as a store of value, land can be traded at a positive price even if the net rate of return on land is negative.
