The Theory of Local Public Goods

Summary

This 1977 essay by Joseph Stiglitz is where the term "Henry George Theorem" was coined. It is the foundational theoretical statement that a single tax on land rent can finance public goods.

The Result

Stiglitz showed that, for an optimally sized community providing public goods at the optimal level, the aggregate land rent generated equals the optimal expenditure on those public goods. Public goods raise the desirability of locations, which is capitalised into land rent (see tax capitalization); capturing that rent recovers exactly what the public spending created. He demonstrated this in a formal general-equilibrium setting, giving Henry George's 19th-century intuition a rigorous modern foundation.

Relationship to Other Work

The result was elaborated the same era in Arnott & Stiglitz (1979) and later extended to realistic "second-best" conditions by Behrens et al. (2015). Together these form the theoretical backbone of the Henry George Theorem.

See Also

• Henry George Theorem · Joseph Stiglitz · Public goods can be funded from the land rent they create

Sources

1. Joseph E. Stiglitz (1977), "The Theory of Local Public Goods," in The Economics of Public Services (Macmillan). Related NBER work: nber.org
2. Formalization: Arnott & Stiglitz (1979) — wiki summary