The Henry George Theorem (HGT), or the golden rule of local public finance, states that,
in first-best economies, the fiscal surplus, defined as aggregate land rents minus aggregate losses
from increasing returns to scale activities, is zero at optimal city sizes. We derive a general
second-best HGT in which the fiscal surplus equals the excess burden, expressed as an extended
Harberger formula. We then apply our theorem to various settings encompassing urban eco-
nomics, the new economic geography and local public finance to investigate whether or not
a single tax on land rents can raise enough revenue to cover aggregate losses from increasing
returns to scale activities.
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