Last year, Astral Codex had a series of interesting posts on Georgism. The claims felt very counterintuitive to me, so I dove into it until I could at least sort out the theory. And I emerged with a better understanding, which I think would be useful to share here.

Key points:

In theory at least, Georgism is correct that a land tax will not cause rents to rise.
Land will become cheaper to buy, and there will be more pressure to use it in an economically viable way.
The economy as whole will benefit.
However, a land tax will not cause rents to fall, either. Indirectly, the better economy may cause them to rise, in fact.

For those who are deep into economic models, you can see a Georgist land tax as causing a deadweight loss in a situation of perfectly inelastic supply - ie no deadweight loss at all, and all the tax will be paid by the inelastic supplier. For a longer explanation, here's the rest of the post.

Marginal rents and taxes

Adage: If you want less of something, tax it.

Quick quiz: if you tax cars, does their purchase price go up or down?

Well, if you put a sales tax, paid when the car is bought, then the price will go up. If you put a road tax, paid every year by the car owner^[1], then the price will go down (since it’s now more expensive to own the car, hence less interesting to buy it in the first place).

Second quiz: suppose you have a nice community of a hundred renters, in identical homes. The rents are reasonable, and everyone renting is much happier to live here than anywhere else. What will happen to the rents?

They will rise, of course. As long as everyone renting prefers to live here than anywhere else, then they will continue to stay here even as the rents rise. And so, rise they will. And they will continue to rise until... until someone living here finds them too high, and moves away. At that point, they stop rising^[2]. So the rent price is determined by the person who is just on the edge of moving away. In economics, this is what they refer to when they talk about the “marginal buyer^[3]”: the gal or guy who thinks “this is not a very good deal; I could go either way on it”. That unsatisfied marginal renter is the one that determines the price.

And, once the prices have reached this level, the landlords can no longer raise rents. Maybe I pay €1,000 for a rental that I value at €1,500. Then the landlord might be tempted to charge me, say, €1,...

Samuel Clayton

Samuel Clayton

Samuel Clayton

Samuel Clayton

Samuel Clayton

Samuel Clayton