Bryan Caplan  

Is the Georgist Single Tax Pigovian?

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On Facebook, John Strong asks me:
Bryan, earlier this year you offered some arguments against a Georgist land tax and expressed bewilderment that tax economists don't seem to notice the obviously preferable alternative of Pigouvian taxes on negative exte
rnalities. You wrote:

"The big puzzle for me: Why do tax economists spend so much time discussing mere curiosities like lump-sum taxation, excess profit taxation, and land taxation, when the completely realistic option of taxes on negative externalities is right in front of their noses?" (

Question: how about the *massive* negative externality of urban sprawl?

For me, a Georgist land tax *is* a Pigouvian tax. It is the only one I can think of that might conceivably dampen the enthusiasm of those who want to gerrymander zoning laws to capture the benefits of rising land values.

Would you please address this in your blog at some point?
Glad to.

1. While Robin Hanson makes the best case I've heard, I'm not convinced that urban sprawl does have negative externalities.

2. Pigovian taxes work by reducing quantity.  If the Georgists are right that the supply of land is highly inelasitic, a single tax on land would have very little effect on urban sprawl.  With perfectly inelastic supply, there's no effect at all.

3. If urban sprawl really did have serious negative externalities, the optimal Pigovian tax would be the mirror image of the Georgist tax.  Instead of targeting the raw value of land, an anti-sprawl tax would specifically target improvements.  Of course, given your anti-sprawl argument you wouldn't want to tax all improvements equally.  Instead, you'd make the tax rate on improvements increase the further you got from the city center.

Bottom line: Whatever you think about sprawl, a Georgist single tax on land is no solution at all.

P.S. In a followup conversation with John, he plausibly blames sprawl on zoning.  On this story, though, shouldn't we think of sprawl as an important way that the market makes a bad situation better?  Imagine the cost of housing and the livability of cities if you combined strict urban zoning with strict limits on suburban construction.

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COMMENTS (11 to date)
Don writes:

A small point: Pigovian taxes don't work by reducing quantity. They work by causing actors to face the true cost of their actions; any reduction in equilibrium quantity is completely incidental. For goods with inelastic supply or demand, a Pigovian tax will result in very little reduction in quantity -- but it'll still work.

One of my favorite exam questions:

True or false: A Pigovian tax on cigarettes won't work, because since the demand for cigarettes is inelastic, the tax won't reduce the quantity substantially.

There is no change in public policies that will cause the suburbs to disappear. Constructing the public infrastructure to support our sprawing development has not been an efficient use of revenue raised by taxing people, but those of us who live and work and play in the suburban world must continue to pay to maintain what was constructed. The relationship between spending on public infrastructure/amenities and land rent is pretty direct. Taxing land rent at something approaching 100% while exempting improvements would certainly encourage owners of land to develop the land held to highest, best use. Given that land rent is highest in the commercial and high employment areas of suburban communities as well as our major cities, the aggregate effect over time would be to slow further outward migration of people and businesses in search of less costly land on which to build housing or conduct business. On one point theory and reality converge: a 100% tax on land rent will bring down land prices considerably by removing the actual or imputed income stream from capialization into a selling price.

Doug writes:

From your original post objecting to Georgist taxation:

"Namely: A tax on the unimproved value of land distorts the incentive to search for new land and better uses of existing land. If we actually imposed a 100% tax on the unimproved value of land, any incentive to search would disappear. "

The simplest solution to this is to consider the search for new an improvement itself. The example you used was oil exploration. That since no one could gain from the value of finding oil no one would do it.

Why not just though consider the discovery of oil of a patch of land heretofore not known to contain oil an improvement? The tax rate can be kept on the value of the land before the improvement.

If the oil discovery was intentional, i.e. carried out by a major oil exploration project consider it an improvement. If it was accidental, i.e. Jed was shooting at some food and up from the ground came some bubbling crude, then consider it unimproved.

You may object that the definition of what constitutes an "improvement" can get somewhat arbitrary, but that's true when determining the value of any improvement, including the value of basic buildings.

dL writes:

I wrote a critique of Caplan's "Search-Theoretic Critique" of Georgism back in February:

Caplan’s Entrepreneurial Critique of Georgism

John Strong writes:


A couple of years ago, I got a wild hair to take advantage of Easter vacation here in Mexico to survey people in the park about how closely they live to a number of different businesses. We encountered so many vacationers that we were able to get a fairly wide sampling with people from different parts of central Mexico (including enormous cities like Mexico City and Puebla). I myself live in a town with a population of 300,000. The following averages come from about 200 data points.

Percentage of people living within 20 minutes WALKING DISTANCE of the following locations:

Church 67%
Baker 65%
Butcher 60%
Supermarket 47%
School 46%
Hardware store 39%
Bank 32%
Cinema 29%
Restaurant 25%
City Hall 25%
Doctor 24%
Car mechanic 24%
Work 20%
Clothing Store 19%
Shoe Store 16%
Phone Company Offices 15%
Post Office 13%
Dentist 13%

Originally, my goal was to show how higher densities are correlated with the profitability of privately-owned public transport. Though it is counter-intuitive, my experience suggests that the easier it is to walk, the *more* people use public transport, not less.

Distance to the Closest Bus Stop (all buses are private):
1-3 blocks 76%
4-15 blocks 18%
half kilometer 1%
more than a half kilometer 2%

Mexican zoning is very, very relaxed by U.S. standards and zoning policy is decided at the state level, so local cabals of suburbanites can not commandeer the zoning process and deploy it as a weapon in their competition to extract rents at the expense of people at the periphery of their jurisdiction (not just inner city folk, but also people owning land that is zoned "agricultural").

When people are "free to build" they invariably choose far more mixed uses than we Americans usually enjoy. We don't need urban planners to dictate that, and we certainly don't need them to regulate *against* sprawl. I believe William Fischel argues that anti-sprawl legislation actually exacerbates the problem.

John David Galt writes:

I'm with you. "Sprawl" is a pejorative used by elitists who want only a rich few (themselves) to be able to afford big, comfortable homes with yards. I want as much "sprawl" as possible: building new "sprawling" suburbs, and selling them to yuppies who then move out of decaying cities, is the main process by which home ownership becomes available to the middle and lower classes, thereby giving those people stakes in the system so that they'll be motivated to behave themselves.

The so-called profession of "urban planning" is no more than the management arm of a cartel of elitist homeowners who want to keep their home prices as astronomically high as possible, forever, by putting every possible obstacle in the way of people who own unbuilt land and want to develop it. This practice is the most evil form of cartel behavior I know about, because it primarily screws the very poorest people to benefit the very richest. (Existing homeowners in each area own and operate the planning agencies for exactly that purpose -- and often also to keep minority groups out of "their" neighborhoods. And don't quote environmentalists to me; their movement exists largely as a front for exactly these two motivations! Why else would the Sierra Club have the same demographics as Marin County?)

John Strong writes:

Bryan, DL makes the following charge against you in his blog, "What Caplan is actually arguing in his working paper is that there is no such thing as land rents." Do you dispute this charge?

I read an article you wrote for Public Choice 11 years ago entitled "Standing Tiebout on His Head" in which - correct me if I misrepresent - you questioned Tiebout's idea that people can make an easy exit from a badly administered municipality, but you generally upheld Tiebout's main idea that city services are effectively capitalized in property prices. If you agree with the Tiebout narrative, then of course you will not see the point of a Georgist tax on land rents.

I'll grant you that middle class families shop for homes in school districts with better ratings, etc., so some portion of house prices does reflect the quality of city services (or people's *perception* of quality, anyway). But in my experience, people care at least as much, probably more, about things like "is this a growth corredor where my property values are likely to rise"?

That's not a capitalization of city services in house prices; that's called trying to harvest a rent from the positive externality of city agglomeration.

John Strong writes:

@John David Galt wrote:

"The so-called profession of 'urban planning' is no more than the management arm of a cartel of elitist homeowners who want to keep their home prices as astronomically high as possible, forever, by putting every possible obstacle in the way of people who own unbuilt land and want to develop it."

Yes, agreed. The urban planners and environmentalists are the Baptists and the rent-seeking homeowners are the Bootleggars (See Bootleggars and Baptists). I feel pretty ill-tempered about this myself, since even if I could afford to live in the U.S. I don't think I could talk my wife into returning. We both are terrified at the idea of living stranded at the edge of a big city again, 20-120 minutes drive from all the businesses we patronize. I loathe the way U.S. cities are laid out.

Prakash writes:

Hi Bryan,

The major negative externality that the single tax combats is sub-optimal use of land or keeping land out of usage. In georgist thought, there is a concept of the margin of production, the output that can be obtained by labour by working on the land of the least value. The margin of production acts as a floor on the wages of labour. By buying land and not utilising it to its best use, the landlord imposes a negative externality on all marginal labour by pushing production to worse and worse land. This lowers the margin of production and reduces the floor of wages.

By taxing production and income and not taxing land, governments worsen this equation.

To state things simply, if labour does not labour, it feels hunger. The single tax just levels that equation out by making sure that underutlised land also feels the need to be utilised.

James Oswald writes:

A lot would depend on how the tax was levied. Unimproved land is very cheap, and so most its value comes from the things around it. If only the unimproved value were taxed, that would raise the relative price of rural and suburban land, since most of the value of city land is the value of being close to others. The "negative externality" of sprawl is really the lack of the positive population density externality. If on the other hand, the tax were levied on the market value of the land, it would discourage improvement quite significantly.

A land tax could encourage good policy by allowing the government to capture the positive rents it creates when it makes good policy. Let's say you have an inefficient zoning law and land prices are $2 million per acre, and if the zoning law were repealed that land price would increase to $2.5 million. While the city government has the capacity to improve the law, it is not a residual claimant on the gains. A Georgist tax policy allows them to become a residual claimant by taxing the gains to their own policy changes. A counterargument could be that such a tax would encourage the government to be capricious with its takings, if it were able to attribute all changes in the value of land to its own actions.

James Oswald writes:

"If urban sprawl really did have serious negative externalities, the optimal Pigovian tax would be the mirror image of the Georgist tax. Instead of targeting the raw value of land, an anti-sprawl tax would specifically target improvements."

No! A tax on improvements would make sprawl much worse, because it would raise the relative price of densely developed land and lower it for less developed land. That would encourage people to spread out over the less developed land and reduce their capital investments. The land itself may be inelastic, but the use of the land is not. Sprawl is inefficiently low population density. If you want to increase density, you should tax things which lower density.

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