Harberger Tax

Storage is a limited resource in blockchains. Once a value is stored in a smart contract, it occupies this space for as long as this blockchain exists. The problem is that the transaction fee is paid only once to a single miner or block producer. And the storage is still occupied even if this miner or block producer doesn’t exist anymore.

Therefore, the idea was to impose a tax on storage. The problem is that this tax needs an assessment basis, a value on what you can apply the tax. The Herberger model suggests that every user self-assessed the value of his storage. Every period, he has to pay 7 % on this value as tax. To avoid too low prices, anybody can buy the asset at that price immediately.

The hope is that each user determines the price correctly.

Problems With Harberger Tax

Who Collects the Tax?

One question is, who collects the tax? If miners receive the tax, they could use storage for free. While they would have to pay the tax for the storage too, they would receive the payment at the same time.

Another option would be to burn these coins. So, nobody has an advantage from collecting them.

Valuation

Another issue is the valuation of the storage. People might not decide rationally as they don’t have the same knowledge as others do. Besides that, the price of a new storage slot influences that price too. Nobody would buy existing storage that is more expensive than new storage.

Possbile Applications of the Harberger Tax

Harberger tax could be applied to NFTs. It could limit the number which mitigates the problem that an existing NFT should not be cheaper than a new one. Besides, each NFT is unique, providing different values to different users.