DOI: 10.1257/mic.20240094 ISSN: 1945-7669
Land, Wealth, and Taxation
Roberto Brunetti, Carl Gaigné, Fabien MoizeauThis paper examines the role of land in wealth dynamics and its consequences for efficiency and inequality. We focus on the interplay among agents’ bidding for location, mortgage market imperfections, and inheritance in a model in which agents leave to their heirs financial bequests and their housing wealth. The borrowing constraint generates a housing return premium and spatial wealth sorting, which translate into persistent wealth inequality. Since altruism and the borrowing constraint distort land price formation, we show that taxing land rent transmitted between generations is optimal. Land taxation cannot be disconnected from taxation on intergenerational wealth transfers. (JEL D31, D64, H71, Q24, R23, R31, R52)