Sunday, August 17, 2014

17/8/2014: The Globalization Paradox and Land-linked Taxation

Couple of years ago, I wrote extensively on the efficiency of land-value or site-value taxes in raising public investment funding and alleviating the adverse impact of private rents accruing to landowners from public investment (see for example here: and more extensive version: I have also covered the advantages offered by land-value taxation in the context of stabilising macroeconomic and tax environments and addressing key risks to these environments (

A new paper by Schwerhoff, Gregor and Edenhofer, Ottmar, titled "The Globalization Paradox Revisited" (July 22, 2014, CESifo Working Paper Series No. 4878. makes a similar argument, but within the context of the land linked taxes efficiency in alleviating a different problem. Note, emphasis in italics is mine.

Per authors: "According to the Globalization Paradox, globalization limits the freedom of choice for national governments. Capital mobility in particular induces tax competition, thus putting downward pressure on capital taxes. However, while capital mobility introduces the inefficiency of tax competition, it makes the allocation of capital more efficient. Whether national welfare and tax-financed public good provision increase or decrease through capital mobility depends on country characteristics. These characteristics include the relative capital endowment, the availability of taxes on fixed factors such as land and the preference for the public good. We compare the two second best settings of a closed economy and an economy with capital mobility to show that the relative capital endowment determines whether the net effect of capital mobility is positive. Fixed factor taxes have the potential to improve welfare by defusing the globalization trilemma through a reduction in the need for capital taxation."

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