A Silver Rule for Financing Local Transport Facilities

Abstract

According to the Henry George Theorem (HGT), the cost of a pure local public good can be covered through a tax on related land-rents. As we show in this paper, this general proposition does not apply to transport facilities. Nonetheless, even if the "Golden Rule" does not apply in this context, land value and transport facilities are related. We show that (i) an improvement of the transport facilities does have a positive effect onto land value when taking into account the effect on the equilibrium city size; (ii) a simple relationship, similar to the HGT, does exist between the cost of optimal transport facilities and aggregate land rents; (iii) any exogenous shock reducing travel costs leads to higher optimal spending in transport facilities and higher land value. This suggests that associated changes in land value could, in a way that we define, subsidize optimal improvements in transport facilities land rents are related to spending in transport facilities.land rents: transport facilities; Henry George theorem