Post by Carl Gaigné

My paper "Land, Wealth, and Taxation", co-authored with Roberto Brunetti and Fabien Moizeau, has been accepted at American Economic Journal: Microeconomics. ▶️ https://lnkd.in/ePmGP4WU ▶️ Motivations: ➡️ #Wealth transmission is largely real-estate based: about 50% of inheritances and donations consist of #housing. In France, urban land alone is worth €7 trillion, roughly half of total real-estate wealth and well above annual GDP. ➡️ Unlike other assets, land is not produced: urban land prices reflect rents, not productive effort. ➡️While #land is abundant globally (more one hectare of habitable land per capita), its value is highly location-specific, challenging standard macroeconomic models of housing. ⚠️ Land is (i) a geographically differentiated good that generates rent, (ii) a durable good whose rent is transmitted between generations, and (iii) an immobile good, and therefore can be taxed without creating economic distortions. ▶️ Main results: ➡️ Credit constraints lead to diverging wealth trajectories even among individuals with identical income levels (symmetry breaking). ➡️ Wealth inequality is persistent, and returns to urban land exceed returns to productive capital. ➡️ Taxing land rents embedded in inheritance is efficient and reduces wealth inequality. ▶️ Contribution: first dynamic urban macroeconomic framework with heterogeneous agents and overlapping generations that explicitly models differentiated urban land, housing and mortgage markets, and inheritance.   For their helpful comments, we thank Marius Brülhart, Maximilian v. Ehrlich, Etienne Lehmann, Kristina Komissarova, François Langot, Rémi Lei, Kurt Mitman, Thomas Piketty, Emilien Ravigné, Debraj Ray, Jacques-Francois Thisse, Anthony Terriau, alain trannoy, and Elisabet Viladecans-Marsal