- Person
- Joseph Stiglitz
- Lived
- b. 1943
- Field
- Economics
- From
- American
The story
In the nineteenth century the American reformer Henry George argued, most famously in Progress and Poverty, that public revenue should come from a single tax on land values. His reasoning was that the location value of land rises as public works improve a place, so the rent of land is the most logical source of public funds. The idea launched a 'single tax' movement.
Joseph Stiglitz supplied one. Working on the theory of local public goods in the 1970s, he doubted the claim that competition among local communities would automatically produce efficient outcomes, as it was thought to do in markets. This led to a joint research project with Richard Arnott on the relationship between spending on public goods and land rents, published in 1979 in the Quarterly Journal of Economics.
Stiglitz showed that, under certain conditions, above all when population is optimally distributed, an optimal supply of local public goods can be funded entirely by capturing the land rents those goods generate. The reasoning is that rivalry for public goods takes place geographically: competition for access to any beneficial public good raises nearby land values by at least as much as the good costs to provide. A single tax on land rents is therefore enough to pay for the ideal level of local public investment. Stiglitz named this result the Henry George theorem.
He also showed how the theorem could be used to work out the optimal size of a city or a firm, and later studies generalised the principle and found that it holds even when some of the original assumptions are relaxed.
Stiglitz has remained a supporter of Georgist public finance. He argues that land value taxation would improve both efficiency and fairness, that natural resource rents should be taxed as close to fully as possible, and that the same logic supports taxing polluters for the harm they cause. He has even suggested that land taxation is better than George himself realised. The theorem gives governments a principled case for funding local public investment from the land values that such investment creates, rather than from taxes on work and enterprise.
Why it matters
The theorem gives governments a principled argument for funding local public investment by capturing the land value it creates.
About Joseph Stiglitz
Nobel economist from Gary, Indiana, who showed how imperfect information distorts markets, led the World Bank’s research and became a leading critic of inequality.
More about Joseph Stiglitz
- Joseph Stiglitz won a Nobel for the economics of informationJoseph Stiglitz shared the 2001 Nobel economics prize for showing how markets work when one side knows more than the other, including how insurers screen customers.
- Joseph Stiglitz explained why unemployment persistsIn 1984 Carl Shapiro and Joseph Stiglitz published a model showing how employers’ difficulty monitoring workers can keep wages high and leave some people unemployed.
- Joseph Stiglitz marched for civil rights in 1963As student council president at Amherst, Joseph Stiglitz joined the March on Washington and organised an exchange with a small African-American college in the South.
- Joseph Stiglitz led a commission on measuring beyond GDPIn 2008 Joseph Stiglitz chaired the Commission on the Measurement of Economic Performance and Social Progress, whose 2009 report argued that GDP alone does not measure well-being.
- Joseph Stiglitz founded a think tank on developmentIn 2000 Joseph Stiglitz founded the Initiative for Policy Dialogue at Columbia University, and since 2005 he has chaired Manchester’s Brooks World Poverty Institute.
Sources
- Joseph Stiglitz Wikipedia
- Henry George theorem Wikipedia
- Joseph E. Stiglitz: Biographical NobelPrize.org
Another act of tikkun olam. This is part of tikkun olam, the Jewish idea of repairing the world, and every one of us can add to it.