Henry George and Mohring–Harwitz Theorems: Lessons for Financing Smart Cities in Developing Countries < sup > * < /sup >

Abstract

Developing countries are embarking on ‘smart city’ programmes to rejuvenate their cities as engines of economic growth, applying smart solutions and managerial innovations. However, they ignore the powerful externalities of cities and are far from adopting ‘smart’ ways of financing urban infrastructure and services based on known theories and international practices. This article combines the Henry George Theorem (HGT) from Urban Economics and Mohring–Harwitz Theorem (MHT) from Transport Economics to suggest a robust strategy of financing infrastructure in cities. While the HGT emphasizes the taxation of urban land value, the MHT advocates the pricing of congestion externalities. The article suggests that if ‘beneficiaries pay’ and ‘congesters pay’ principles are combined, cities in developing countries like India can generate adequate revenues to service long-tenor debt incurred for core infrastructure facilities. It presents a toolbox of instruments to finance urban infrastructure.