But the economic question is not whether the basketball star should play basketball or be a model. The economic question is for which team should he play; the one who values his services at $100,001 or another that values his services at $1,000,000.
The same applies to land (and other resources whether "natural" or not). The economic question is not whether to put the land to use or not. The economic question is whether you put your acre plot in New York City to use for farming or an apartment building (and then what sort of building; etc.). Economic rent is therefore just like any other rent, it directs (provides incentives ) resources to their most valued use. ----- Original Message ----- From: "Fred Foldvary" <[EMAIL PROTECTED]> To: <[EMAIL PROTECTED]> Sent: Friday, January 17, 2003 2:04 PM Subject: Re: Neutral taxation? > --- Susan Hogarth <[EMAIL PROTECTED]> wrote: > > <<A tax on economic rent is neutral, since by definition, economic rent > > is income not necessary in order to put a factor to its most productive > > use.>> > > > > I don't understand this. Could you expand it a bit, please? > > Susan Hogarth > > Suppose a basketball star gets $1 million per year. If he did not play > basketball, the next best opportunity would be to be a model earning > $100,000 per year. So he would play basketball for $100,001. The rest of > his income comes from his personal monopoly, and is not needed to get him > to play basketball. This is economic rent, a surplus. The economic rent > could be taxed, and he would still play basketball. > > Most of the rent of land is economic rent. By land I mean natural > resources, including the space around the earth. So buildings and > improvements are excluded from land, including the preparation of the soil > or surface. Since land is here by nature and cannot be created nor moved, > the supply is fixed. Unlike labor, land does not seek leisure. So to put > a plot of land to its most productive use, the title holder need only > retain a small fraction of the rent (say 10 to 20 percent), and the rest is > economic rent. That rent can be taxed without any reduction in the amount > of land or any diminution of its productivity. If the landlord had already > been charging the maximum rent the market can bear, the tax on rent cannot > be passed on to tenants, so it is neutral with respect to economic action. > > Fred Foldvary > > ===== > [EMAIL PROTECTED] > >
