Is the Georgist Single Tax Pigovian?
By Bryan Caplan
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 externalities. 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?” (http://www.econlib.org/archives/2012/02/a_search-theore.html)
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
Would you please address this in your blog at some point?
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.