Could applying the original Monopoly® rules help promote financial solidarity?

Could rising property prices help create a fairer society? Following in a long tradition of economic thinking, Alain Trannoy and Etienne Wasmer suggest restructuring French taxation around property: land value assets, rather than capital or labour. 

You roll the dice, and they land on 4 and 3. You move your token forward seven squares, and it becomes clear that this game of Monopoly® is not going in your favour: you land on Rue de La Paix, the most expensive street in Paris, where your opponent has built several houses. Paying the rent will result in your financial ruin. But what if you change the rules of the game? You could, for example, pay your opponent a simple contribution to the cost of building and maintaining their houses, and deposit the rest in a common fund to be redistributed to everyone. This is what the inventor of Monopoly®, Elizabeth Magie, originally proposed. The objective of the game, then called "The Landlord’s Game", was to denounce the monopolisation of land ownership by a wealthy few, hence the existence of two sets of rules for the game from 1932 onwards. The Landlord Game’s rules (which we follow today) was designed to show how the American ‘national housekeeping’ had been mismanaged, and the alternative Prosperity Game rules proposed a solution for "working towards the common good", by collectively redistributing the added value from land. 

Elisabeth Magie 1930 CC_BY-NC_Anspach Archives

Using land wealth to finance national solidarity is precisely the idea that economists Alain Trannoy and Etienne Wasmer are revisiting today1. The current French system of redistribution is very effective in reducing inequalities: the wealthiest 10% of the French population has an income on average 20 times higher than the 10% least wealthy. After paying taxes and social security contributions, the ratio falls from 20 times to just 52.  Yet because the model is mainly based on economic activity – that is, social contributions paid by companies and employees, and taxes (mainly VAT, income tax and corporate tax) – the question of how to guarantee the sustainability and robustness of this model arises. In fact, its weakness lies in the fact that it is funded by work and investment. On the one hand, taxing salaries and capital have a negative impact on economic growth, on which the French redistributive system is based. On the other hand, the yield from these compulsory levies varies with the economic climate and is therefore not very reliable. Furthermore, these compulsory levies neglect a significant proportion of France's national wealth.

• 1

  Alain Trannoy and Etienne Wasmer, Le grand retour de la terre dans les patrimoines, et pourquoi c’est une bonne nouvelle, Odile Jacob, 2024  

• 2

  Anne Brunner et Louis Maurin, « Redistribution : comment les impôts et les prestations réduisent les inégalités », Observatoire des inégalités

A country rich in land assets

It is a little-known fact that France's wealth is comprised one-third financial assets and two-thirds real estate. In 2022, property assets amounted to around 18,000 billion euros, with buildings making up the land value, where the other half is land assets. The proportion of national wealth accounted for by land value (8,900 billion euros) is growing steadily: it represented one year of GDP after the Second World War, and now accounts for three years. This long-term trend is unlikely to reverse permanently. Unlike in previous centuries, the value of land is no longer based on agricultural potential : 80% of land value is based on land used for housing, mainly concentrated in urban centres and coastal areas. There is little reason for prices will fall, due to their attractive development potential, current demographic pressure, and French regulatory management that protects agricultural land. Adding to this is the objective of "zero net land take" adopted to reverse the 20th century trend by which many agricultural, natural or forest lands were redeveloped for various purposes, particularly housing. In order to protect nature, the "Climate and Resilience" Act in 2021 set the goal of ending the transformation of non-artificialised land by 2050, which will inevitably increase pressure on land prices.

Picture by Alejandro on Adobe Stock

Georgism

Georgism. Why was this vast reserve of wealth overlooked when our social model was established? It seems that it was simply for historical reasons. After the end WW1, when income tax was introduced and implemented in full, and especially in 1945 when social security was created, French real estate assets were at their lowest historical value following the ravages of the two world wars: half a million houses and 3 million hectares of agricultural land had been rendered unusable by 19183, and 1.5 million buildings were totally or partially destroyed during the Second World War. This is the reason why national solidarity was based on productive wealth. Land was taxed only marginally, principally via levies on the value of buildings, and not on the value of land. In 2018, property tax (which is in reality a building tax) represented only 3.5% of all compulsory levies4.

Would taxing land be a Utopian idea? The concept is far from new. Originating more than two centuries ago, it gave rise to a significant shift of opinion in the United States at the end of the 19th century, under the influence of the American economist Henry George. Seeking to understand what he perceived as ‘an increase in poverty aligned with an increase in wealth’, he encouraged the adoption of a property tax as the sole form of taxation. Failing to advance his proposal, which American landowners opposed tooth and nail, the economist inspired a powerful political movement known as Georgism, and it was this movement that inspired Elizabeth MagiePhillips to invent the game of Landlord’s Game. The idea of a single property tax continued to appeal to many economists during the 20th century. Thirty30 of them, among them 4 Nobel Prize winners (including James Tobin), went so far as to submit the idea in 1990 to Mickaël Gorbachev. As the First Secretary of the Soviet Union, he was in the process of implementing Perestroika, a programme of far-reaching economic and social reforms. Today, the principle of a tax on land value has been adopted by several countries. In Europe, Estonia, Denmark and Luxembourg and Russia have already implemented it.

• 3

  Pierre Bezbakh, « 14-18, une saignée pour l’économie française » Le Monde, 30 May 2014 ; Jacques Quellien, « La Reconstruction », site Chemins de Mémoire 

• 4

  Mathieu Castagnet, « Plus de mille milliards d'euros d'impôts » La Croix, 15 October 2018

Efficient and fair

Restructuring the French taxation system around property tax would have many advantages. Such a tax would be very effective: land value is high, and assets obviously cannot be relocated. In addition, it is a simple task to determine land value: the ownership of the land is well-documented by the land registry and conveyancing solicitors, and unlike residential buildings and other constructions, the value of the land in urban areas depends almost entirely on its location.  It is also a fair tax. Currently, the wealthiest 10% of households own 40% of the country's real estate assets, and property tax represents only 2% of their disposable income. This compares to 4% of the disposable income of the most modest property owners. This tax would be a fair return for the community: imagine that your great-grandfather bought a small vegetable garden in the suburbs of Paris at the beginning of the 20th century. If you wanted to sell this land today, its value will have increased tenfold for reasons largely independent of your personal investments: proximity to Paris, the development of water, sanitation and transport networks, the stability of the country, solidity of its institutions, and so on. In short, you will have benefited from the efforts of the surrounding community which contributed to this increase in value. The community would therefore be justified in recovering a percentage of any capital gains generated. 

Picture by Xiongmao by Adobe Stock

To bolster their suggestion to restructure French taxation around land, the researchers compared various taxes (property tax, rent tax, capital tax) based on a model, described in the scientific article "Land is back, it should be taxed, it can be taxed" published in 2021 in the European Economic Review. . Their calculations show that a tax system based exclusively on property tax would be the most effective. Pragmatically, however, it would be difficult to implement this – for political reasons alone, hence the proposal to modulate the tax according to the way in which land is used, and to couple it with aid for investments in buildings. The modelling suggests that a property tax of 1% would be enough to completely replace current real estate taxes (local taxes, transfer duties, existing property taxes, wealth tax, VAT on buildings, taxes on rental income, and so on). By raising the tax to 2%, its use could be extended to reduce social contributions on salaries.  The case of low-income homeowners – who are mainly retirees – remains a question to be answered. A possible solution would be to offer an option of deferring the payment of the tax until the time of the owner's death, when the estate is being settled.

At a time when France is experiencing massive debt, the country’s real estate assets could be mobilised to overhaul taxation, relieve public finances, and ensure the sustainability of the social model. Sceptics could be convinced by playing a game of Monopoly®, using the Prosperity rules, as encouraged by Elizabeth Magie.