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

Hellwig, Martin F.

doi:10.1016/j.econlet.2020.109603

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

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Hellwig, Martin F.
Max Planck Institute for Research on Collective Goods, Max Planck Society;

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Hellwig, M. F. (2020). Property taxes and dynamic inefficiency: A correction of a “correction”. Economics Letters, 197: 109603. doi:10.1016/j.econlet.2020.109603.

Cite as: https://hdl.handle.net/21.11116/0000-0008-26B4-2

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.