5 comments on “Timmy Elsewhere

  1. “stamp tax at 5 percent can be seen to be changing behaviour, VAT at 17.5 percent does”

    But stamp duty only changes behaviour because it’s (insanely) applied to the whole transaction value rather than the transaction value above the threshold – i.e. the marginal tax rate when moving from a £245k house to a £255k house is over 100%, not under 40%.

    And does VAT really have much impact on whether or not people choose to buy stuff?

    Tim adds: Sure: it’s one of the justifications for such consumption taxes: that it encourages saving by raising the price of consumption.

  2. ‘Tim adds: Sure: it’s one of the justifications for such consumption taxes: that it encourages saving by raising the price of consumption’

    Is this something that you believe to be true?

    Tim adds: What? That by taxing something you discourage it, people, at he margin, then preferring untaxed activities? I’d have thought it wa a fairly basic idea.

  3. “Tim adds: Sure: it’s one of the justifications for such consumption taxes: that it encourages saving by raising the price of consumption”

    A justification used by theoretical economists and Laffer-lovers, perhaps.

    But I’m 100% sure that VAT has only ever been implemented as an administratively-convenient way of raising money – and I’m 99% sure that a rise in VAT would lead to a fall in saving as people maintained current consumption levels at new price rates…

  4. update – I can’t face digging the real figures out of the unusable National Statistics site (it’s bad enough being paid to use it…), but here’s a chart showing the UK savings ratio over time.

    In the quarter that VAT rose from 15% to 17.5% (Q2 1991), the savings ratio fell despite already being on a clear upward trend. It then rose to a peak in Q2 1992, and fell again afterwards.

    It’s pretty hard to come up with anything conclusive based on that data, given the recession the UK was having at the time, but it certainly doesn’t provide empirical support for the theory that +VAT leads to +saving.

  5. ‘Tim adds: What? That by taxing something you discourage it, people, at he margin, then preferring untaxed activities? I’d have thought it wa a fairly basic idea.’

    Saving is deferred consumption, which is is taxed in the same way as current consumption.

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