Public goods can be funded from the land rent they create

The Claim

Public goods — transit, parks, security, schools — raise the value of nearby land. Under optimal conditions, the aggregate increase in land rent equals the cost of the public goods, so a tax that captures land rent can finance them completely, with no tax on labour or capital.

The Basis

This is the Henry George Theorem, formalised by Arnott & Stiglitz (1979) and Stiglitz (1977). The intuition: public goods are capitalized into land values (see tax capitalization), so the rent they create is exactly the right pool to fund them.

Strength of Evidence

Strong as theory — it is a proven welfare-economics result under stated conditions. Empirically, the capitalization of public investment (e.g. transit access) into land values is well documented, supporting the mechanism even if real economies depart from the ideal conditions.

See Also

• Henry George Theorem · Land Value Capture

Sources

1. Arnott & Stiglitz (1979) — wiki summary