On the Homogeny, Separation, and Substitution of Rent and Tax

Abstract

Historically, tax, as a cost for exclusive property rights, emerged earlier than rent, as a return of scarcity of land. The need to protect mature crops from others exists even when land is copious. Therefore, initially, the only income derived from public farmland was tax. Along with the growth of population and increase of land scarcity, returns from agriculture came to include more and more elements of rent. Finally, rent separated from tax when land began to be traded and labor began to move freely. However, tax and rent can be substituted with each other in terms of income, and complemented each other in terms of service, since they have same origins and similar natures. Rents increase when taxes fall. Some agents with both power to tax and the right to collect rents may receive returns by substituting one for another. “County competition,” described by Steven Cheung as a kind of competition in land prices, in fact is competition on tax rates. This kind of competition is efficient as long as land trade follows market rules; otherwise, it is not efficient.