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Post-Corona balanced-budget super-stimulus: the case for shifting taxes onto land

Goodhart, C. A. E., Hudson, Michael, Kumhof, Michael and Tideman, Nicolaus (2021) Post-Corona balanced-budget super-stimulus: the case for shifting taxes onto land. CEPR discussion paper series (DP16652). Centre for Economic Policy Research (Great Britain), London, UK.

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The post-Corona economic environment puts a premium on finding fiscal means to stimulate the economy while continuing to finance current levels of expenditures and debt. We develop and carefully calibrate a model of the US economy to show that an increase in the tax rate on the value of land, balanced by decreases in the tax rates on the incomes of capital and labor, can meet this need. We find that the US share of land in total nonfinancial assets is more than 50%, so that the tax base is very large. This is corroborated by very high quality OECD data for other industrialized economies that, almost without exception, find land shares of between 40% and 60%. Our baseline proposed tax reform is an increase in the tax rate on the asset value of land from its current 0.55% to 5.55%, accompanied by reductions in tax rates on capital and labor incomes of 28 and 10 percentage points, respectively. In a representative household model, this increases welfare by 3.4% of steady state consumption, and increases output by almost 15% relative to trend. In an economy with separate groups of workers, capitalists and landlords, the output gain is the same, while the welfare gain increases to 6.4% on average across the three groups. Welfare and output gains for a wealth tax that raises the same revenue, and which increases the tax rates on capital and land equally, are only half as large as the baseline. Welfare and output gains for an optimal tax reform, under the assumption that the tax rate on the value of land is capped at 20%, are approximately twice as large as the baseline. This reform raises 55% of all tax revenue through land taxes, with the remaining 45% raised through consumption taxes, while all income taxes are abolished.

Item Type: Monograph (Discussion Paper)
Official URL:
Additional Information: © 2021 The Authors
Divisions: Financial Markets Group
Subjects: H Social Sciences > HC Economic History and Conditions
H Social Sciences > HJ Public Finance
H Social Sciences > HD Industries. Land use. Labor
H Social Sciences > HG Finance
JEL classification: E - Macroeconomics and Monetary Economics > E6 - Macroeconomic Policy Formation, Macroeconomic Aspects of Public Finance, Macroeconomic Policy, and General Outlook > E62 - Fiscal Policy; Public Expenditures, Investment, and Finance; Taxation
H - Public Economics > H2 - Taxation, Subsidies, and Revenue > H21 - Efficiency; Optimal Taxation
H - Public Economics > H6 - National Budget, Deficit, and Debt > H61 - Budget; Budget Systems
Date Deposited: 16 Nov 2021 13:57
Last Modified: 16 May 2024 12:23

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