What is georgism

Georgism as a model for the sustainable use of global commons? Prof. Dr. Ottmar Edenhofer November 1st, 2017

Transcript

1 Georgism as a model for the sustainable use of global commons? Prof. Dr. Ottmar Edenhofer November 1st, 2017

2 Henry George () 120th anniversary of death Land rents depress real wages despite increasing labor productivity Taxation of land rents to overcome poverty Single tax movement Provision of public goods (HG Theorem) Rents should be used to finance public tasks Debate on a new concept of property: connection of freedom and Justice In a society of the free there should be no undeserved income. 1st of November

3 Henry George and Pope Leo XIII Encyclical Rerum Novarum (RN) 1891 Opposes George's concept of property Taxation of land rents is understood as expropriation and thus as an attack on legitimate private property. McGlynn heriocally staving off two popes - Cartoon 1886 Source: Schratz, Sabine, The Poison of Old Europe and the Workers of the New World. On the American background of the encyclical Rerum Novarum (1891). Paderborn, Munich, Vienna, back in November

4 Henry George and Pope Leo XIII Two reasons a) The Catholic Church itself owned large estates and lives (e) directly or indirectly from the basic rent b) Property, family and state are understood as sacred rights after the French Revolution. The idea of ​​unjust land ownership is rejected (RN, 7 and 8). 1st of November

5 Henry George and the Popes of the 20th and 21st centuries The atmosphere is understood as the common property of humanity (Laudato Si 23) The universal destination of earthly goods limits private property: the right to private property is subordinated to the common right to usufruct. (Laborem Exercens 14) The taxation of pension income is not explicitly discussed, but legitimized through the concept of common property and the universal determination of earthly goods. 1st of November

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7 Core Theses 1. The distribution of land rents determines prosperity in the 21st century 2. Land rents shape economic inequalities 3. Land rents are closely linked to climate protection and the protection of biodiversity (countries) Land taxation can be understood as an important instrument of the Sustainable Development Agenda (SDGs) will be November 1st

8 Contents 1. What are land rents and what determines their amount? 2. Land rents, growth and prosperity; 3. Land rents and distribution; Housing question 4. Land rents, climate protection and forest protection 5. Land taxes internationally and in Germany 6. Climate pensions and global sustainability November 1st

9 Land is (again) in the spotlight Two megatrends of the 21st century: 1. Urbanization Urban soil 2. Climate change & bioeconomy Agricultural soil November 1st

10 Cities as engines of prosperity Worldwide, cities account for 80% of global value added 5% through Tokyo, New York, Los Angeles, Paris and London Germany Value added in urban areas 50% higher than in rural areas Attractiveness despite increased air pollution, crime and the cost of living, lifestyle, options and social interaction November 1st

11 Rise in land prices becomes an obstacle to growth in industrialized countries 80% of the rise in housing costs is borne by the rise in land prices Land prices (index, 1990 = 100) Note: The years of the two world wars are shown with shading. Source: Knoll et al. (2017) November 1

12 Development of rents and land rents in Germany Prices [Index: 2010 = 1] Interest rate [%] Data: OECD.stat Land prices (index) Rents (index) Interest rate November 1st

13 Urban planning has become global politics Paper in PNAS: Conflict of use between urbanization and agricultural land Urbanization devours km² of the most fertile arable land November 1, 2017 Bren d Amour et al. (2016) 13

14 Climate change & bioeconomy Increasing pressure on agricultural land Negative emissions become relevant for below 2 C November 1, 2017 Minx et al

15 1. What are land rents and what determines their amount? 2. Land rents, growth and prosperity 3. Land rents and distribution; Housing question 4. Land rents, climate protection and forest protection 5. Land taxes internationally and in Germany 6. Climate pensions and global sustainability November 1st

16 The peculiarity of land taxes The annual income from land and labor as well as the real wealth and income of the large number of people would be just as high after such a tax as before. Adam Smith - Wealth of Nations (1776), Book V, Chap. 2, Article 1 November 1st

17 The economic costs of taxes Income taxes generally reduce Die Wirtschaftskraft 1 EUR Tax revenue 1 EUR Direct loss of income (taxpayer) 0.96 EUR Loss of economic output (production) Estimate for Germany according to Barrios et al. 2013 / EU Commission Exceptions: Use of income for growth-promoting investments Pigou taxes (internalisation of negative external effects) Taxes on fixed production factors (land) November 1st

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19 Land taxes and portfolio effect Martin Feldstein (1977): Portfolio effect land taxes lead to a shift of wealth towards physical capital (shares) Long-term growth effects (since more is invested, but the amount of land remains the same) Numerical order of magnitude significant (Franks et al . 2016) Growth and distributional effects of capital, inheritance and land taxes November 1st

20 Land rents slow growth Capital taxes Land taxes Inheritance taxes Franks et al. (2016) November 1

21 1. What are land rents and what determines their amount? 2. Land rents, growth and prosperity 3. Land rents and distribution, the housing issue 4. Land rents, climate protection and forest protection 5. Land taxes internationally and in Germany 6. Climate pensions and global sustainability November 1st

22 Heinrich Zille The late sleeper, November

23 Henry George Progress and Poverty [T] he main cause of inequality is the natural monopoly conferred by land ownership. [] Once inequality exists, land ownership tends towards concentration and development goes on. [...] The unequal distribution of power and goods created by complementing human society hinders the force by which progress is created, society advances, and eventually lifts it to November 1st

24 Real estate assets grow disproportionately with average income. Real estate assets [1000 EUR] income vs. real estate assets Main residence Other real estate Household income [EUR / month, net] Data from Bundesbank / PHF November

25 Rising rents are regressive Share of living [% of consumer spending] from to to to to to to to Dates: DeStatis monthly net income per household (euros) November 1st

26 1. What are land rents and what determines their amount? 2. Land rents, growth and prosperity; 3. Land rents and distribution; Housing question 4. Land rents, climate protection and forest protection 5. Land taxes internationally and in Germany 6. Climate pensions and global sustainability November 1st

27 Land taxes Land use of Thünen & neoclassical growth theory Primeval forest exists predominantly where the land rent is zero Land taxes (unit taxes) reduce land conversion in agricultural land In addition: Growth effects through structural change Kalkuhl & Edenhofer (2017) Int Tax Pub Finance November 1st

28 Property tax vs. land tax Property tax = tax on land + buildings High buildings (with many apartments) become more expensive. Property tax promotes urban sprawl (land and energy consumption Empirical studies in the USA: conversion to land tax increases density Source: Planet Geography November 1st

29 1. What are land rents and what determines their amount? 2. Land rents, growth and prosperity; 3. Land rents and distribution; Housing question 4. Land rents, climate protection and forest protection 5. Land taxes internationally and in Germany 6. Climate pensions and global sustainability November 1st

30 Land rents in world regions% GDP Urban land rents Agricultural land rents, 2 10 8,, 9 2.3 2.6 2.5 3.0 0.3 0.5 High income: nonoecd High income: OECD Upper middle income Lower middle income 2.1 Low income Source: Own illustration based on data from World Bank. 1st of November

31 Land taxes Relevance for developing countries Developing countries suffer from low tax revenues (10-20% of GDP) Undersupply of public services Low growth Income taxes difficult to implement due to the high share of the informal sector in total value added Land rights (land title) create additional benefits More sustainable land use through secure property rights Use of land as security for loans (investments) Even moderate tax rates can generate significant income November 1st

32 Current reform of the property tax Federal Council: legislative initiative (2016) has as assessment basis: Land value + building value Taxation of the building value exacerbates housing problems in the long term High administrative costs for building valuation (IW: initial valuation 1.9 billion, ongoing costs 220 million; Federal Council: 6 years for full valuation) Scientific advisory board of the Ministry of Finance still advocates associated property tax Tax on building value acts like a flat rate per capita This would reduce influx and overcrowding November 1st

33 Alternative: Pure land tax low bureaucratic effort, as it is reduced based on standard land values ​​Land speculation currently approx. 7% of the unused areas creates incentives to build more densely and counteracts urban sprawl draws off additional land value that the state itself creates through investments Ongoing legislative proposal: Länder & Give municipalities the opportunity to tax only the land rent. Long-term: ecological-social tax reform Land guidelines for Berlin November 1st

34 Natural pensions as a source of public finances Annual pension [bill. EUR] Share of GDP, comparison of revenue, income tax, comparison of revenue, municipalities, comparison of public Investments in real estate rents 181.9 7.9% 153% 120% 419% of which pure land rent Agricultural. Land rents 85.2 3.7% 72% 56% 196% 8.4 0.4% 7% 6% 19% Natural resources 1.4 0.1% 1% 1% 3% CO 2 price (40 / tco 2 ) 34.1 1.2% 29% 23% 79% TOTAL - natural pensions 129.1 5.3% 108% 85% 297% Kalkuhl, Edenhofer, Hagedorn (2017) November 1st

35 Land Rent and Land Taxes Narrative Karl Marx () John Locke () Pope Paul VI (1965) Henry George () Milton Friedman () November 1st

36 Land taxes and the SDGs Fiscal policy scope for investments in housing and (local) common goods Efficient land use and protection of forests (biodiversity and carbon) Land taxes Reduction of wealth concentration and inequality Strengthening of real investments (economic growth, jobs) November 1st

37 1. What are land rents and what determines their amount? 2. Land rents, growth and prosperity; 3. Land rents and distribution; Housing question 4. Land rents, climate protection and forest protection 5. Land taxes internationally and in Germany 6. Climate pensions and global sustainability November 1st

38 The scarcity of the atmosphere renders fossil raw materials in the ground superfluous Raw materials that have to remain in the ground By 2100 With CCS [%] Without CCS [%] Coal Oil Gas Source: Bauer et al. (2014); Jakob, Hilaire (2015) November 1

39 Scarce landfill atmosphere, fossil resources and reserves 39

40 Thank you for your attention Further publications Edenhofer, O. and M. Kalkuhl (2016). From Land grabbing to the appropriation of global commons. In: Emunds, B. and I. Merkle. Environmental justice. From the social challenges of the great ecological transformation. Metropolis-Verlag, Marburg. Kalkuhl, M., O. Edenhofer and J. Hagedorn (2017). Rising land rents, wealth inequalities and opportunities for political action. Kalkuhl, M., B. Fernandez Milan, G. Schwerhoff, M. Jakob, M. Hahnen, F. Creutzig, Jetske Bouma and Stefan van der Esch (2017). Land Taxes as Fiscal Instruments to Promote Sustainable Development. Report. MCC Berlin. 1st of November