Aggregate Land Rents, Expenditure on Public Goods, and Optimal City Size
The canonical formalization of the Henry George Theorem: in an optimally sized city, aggregate land rent exactly equals the optimal spending on public goods.
Summary
This 1979 Quarterly Journal of Economics paper by Richard Arnott and Joseph Stiglitz is the canonical statement of the Henry George Theorem. It provides the formal conditions under which a single tax on land rent suffices to finance public goods.
The Result
The authors show that, for a city at its optimal size with public goods provided optimally, the aggregate land rent generated equals the aggregate cost of the public goods. The intuition: public goods make a location more desirable, and that desirability is capitalised into land rent. Capturing the rent therefore captures exactly the value the public investment created — a self-financing mechanism with no need to tax labour or capital.
Significance
The theorem turns Henry George's intuition into a precise welfare-economics result, derived by a future Nobel laureate (Stiglitz). It is one of the strongest theoretical foundations for land value taxation in mainstream economics.
Bears On
- Concept: Henry George Theorem
Sources
- Richard Arnott & Joseph Stiglitz (1979), "Aggregate Land Rents, Expenditure on Public Goods, and Optimal City Size," Quarterly Journal of Economics 93(4):471–500. PDF
- Joseph Stiglitz (1977), "The Theory of Local Public Goods" — the paper that coined the Henry George Theorem.