What is the Harberger Tax?

This page gives a brief description about the Harberger tax and it's history in economics.

Often called Common-Ownership Self-Assessed Tax (COST), the Harberger tax is a property-tax scheme first sketched by Harberger in the mid-1960s and elaborated more recently by Eric Posner & E. Glen Weyl in Radical Markets. It combines three rules:

Step	Core rule	Purpose
1 — Self-assessment	The owner publicly sets a value on the asset.	Determines the tax base.
2 — Always-for-sale	Anyone may buy the asset at that declared price at any time.	Makes hoarding costly and keeps markets liquid.
3 — Continuous tax	The owner pays a periodic tax (e.g., 5 % per year) on the declared value until the asset is sold.	Generates revenue and discourages over-valuing.

Together, the pressure to keep taxes low (declare a small value) and the risk of being bought out cheaply (declare a high value) cancel out, nudging owners toward truthful pricing of the asset.

A quick numerical example; Suppose you own an NFT you value at 10 ETH.

• You list it at 10 ETH and the protocol charges a 5 % annual Harberger tax.

• Your tax bill streams at 0.5 ETH / yr (≈ 0.00137 ETH per day).

• Anyone willing to pay 10 ETH can take the NFT instantly; if you actually value it more, you can raise the declared price—but your daily tax rises proportionally.

Origins & Evolution

Arnold Harberger in 2016 (born July 27, 1924)

Arnold C. Harberger is an American economist (b. 1924) long associated with the University of Chicago. He is best known in public-finance circles for the “Harberger triangle” (a textbook diagram of dead-weight loss) and for early work on cost-benefit analysis and tax policy.

This concept was first introduced in 1965 by the economist, who aimed to address inefficiencies in property taxation, particularly in developing countries. Harberger’s proposal was rooted in the idea of reducing deadweight losses associated with monopolistic ownership and improving the allocation of resources.

The Harberger Tax gained renewed attention with the 2018 publication of Radical Markets by Eric Posner and E. Glen Weyl. In their work, they argue that traditional property rights can lead to monopolistic behaviors and inefficient resource distribution. By implementing a system where ownership is contingent upon a willingness to sell at a self-assessed price, they suggest that markets can become more dynamic and equitable.

An Example (Real Estate)

Consider a scenario where Alice owns a parcel of land in a city implementing the Harberger Tax system. She assesses the value of her property at $500,000 and pays an annual tax of 5%, amounting to $25,000. This self-assessed value is publicly known, and at any time, another individual can purchase the property from Alice at this price.

If Bob believes the land is worth more, perhaps due to planned developments in the area, he can buy it from Alice for $500,000. After acquiring the property, Bob must then set his own self-assessed value and continue paying the corresponding tax. 

This mechanism ensures that properties are continuously evaluated and utilized by those who value them most, discouraging speculative holding and promoting active use. By aligning tax obligations with self-assessed valuations and enabling open market transactions at these prices, the Harberger Tax aims to foster a more dynamic and equitable economic environment.

Crypto Implementations

Harberger-style licenses are being tested for digital land (e.g., Geo Web) and have been proposed for DAO treasuries, NFT marketplaces, and even real-estate pilots. Smart-contract automation makes the “always for sale + streaming tax” logic easy to implement on-chain.

Here are a few examples:

• Wildcards: NFT Patronage for Conservation: Wildcards is a platform that tokenizes endangered animals as NFTs on Ethereum. Each NFT is always available for purchase at the owner’s self-assessed price, with owners paying a periodic tax on this valuation. Proceeds from taxes and sales support wildlife conservation efforts, ensuring that assets remain in the hands of those who value them most while funding public goods. 

• Hourglass Protocol: Ephemeral Ownership via Harberger Tax - Hourglass Protocol introduces a standard for digital assets on Solana, emphasizing ephemeral ownership and perpetual auctions. Assets, termed “Hourglasses,” are always for sale at the owner’s declared price, with taxes paid on this valuation. This model ensures assets are utilized by those who value them most, discouraging speculation and promoting efficient use.

• Unihedge: Prediction Markets with Harberger Tax Dynamics - Unihedge is a decentralized prediction market platform that incorporates Harberger Tax principles. Participants own prediction shares by self-assessing their value, paying taxes accordingly, and remaining open to selling at the declared price. This approach enhances liquidity and continuous price discovery in prediction markets.