The Henry George Theorem – that in cities of optimal size aggregate land rents equal expenditures on public goods – holds under three conditions: (i) for all large economies in which (ii) the spatial distribution of economic activity is Pareto optimal and in which (iii) differential land rents are well defined.

All three conditions are required, however; if any one of them is violated, Henry George's single tax on differential land rents may provide too much or too little tax revenue. When, in addition to pure local public goods, there are other sources of economies and diseconomies of scale, e.g., congestion costs, there still exists a simple relationship between differential land rents and a particular set of urban economic aggregates, provided that the three conditions above are still satisfied.

theoretical