<p>I think in this case the typical economist's answer prevails: it depends. Taxes are distortive in so far as they prevent valuable economic activity from taking place. </p>

<p>Income taxes make working less attractive and therefore reduce the supply of labour. In an economy that is already labour constrained the distortion of income taxes can thus be significant. If, in contrast, land is a valuable but scarce resource land taxes will be distortive as well.</p>

<p>You're right that VAT is a consumption tax, and thrifty people won't mind such taxes typically. It is not  true that non-thrifty people won't mind income taxes because if we tax away their income they have nothing to spend! Taxes on interest or capital on the other hand won't be a much of a direct problem for the non-thrifty consumers.</p>

<p>Taxes on investment are distortive because they prevent valuable investments from taking place. This is the main argument put forward for lowering the taxes for the super rich in the US. As their income comes from investment lowering their taxes will spur investment. In how far this actually happens and whether the money is actually invested in the US is a different matter.</p>

<p>As a final point: some taxes are actually improving things by preventing economic activity. Environmental taxes like a tax on CO2 should in principle curb CO2 emissions and in that way correct distortions rather than introduce them.</p>

CC BY-SA 3.0
2018-04-14T12:45:00.797Z
2018-04-14T12:45:00.797Z
Maarten Punt
<p>Income tax, Poll tax, Land tax, or VAT?</p>

<p>Georgist argue for land taxes. </p>

<p>I think jizya is a form of poll tax.</p>

<p>VAT? I don't know.</p>

<p>I don't like income tax but can't really articulate why it's so bad.</p>

<p>Which one, for the same amount of revenue, reduces a country's GDP?</p>

<p>It seems that thrifty people will like VAT and spendthrift people will like income tax. Am I correct?</p>

<p>Would encouraging spending or encouraging investing a form of distortion?</p>

<taxation>
Which one is most distortive?
user4234
# Which one is most distortive?

(Asked by: username_0 on 2018-04-14)

Income tax, Poll tax, Land tax, or VAT?

Georgist argue for land taxes.

I think jizya is a form of poll tax.

VAT? I don't know.

I don't like income tax but can't really articulate why it's so bad.

Which one, for the same amount of revenue, reduces a country's GDP?

It seems that thrifty people will like VAT and spendthrift people will like income tax. Am I correct?

Would encouraging spending or encouraging investing a form of distortion?

**Tags:** taxation

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## 1 answers

### Answer by username_1 on 2018-04-14. Score: 2 | Accepted answer

I think in this case the typical economist's answer prevails: it depends. Taxes are distortive in so far as they prevent valuable economic activity from taking place.

Income taxes make working less attractive and therefore reduce the supply of labour. In an economy that is already labour constrained the distortion of income taxes can thus be significant. If, in contrast, land is a valuable but scarce resource land taxes will be distortive as well.

You're right that VAT is a consumption tax, and thrifty people won't mind such taxes typically. It is not true that non-thrifty people won't mind income taxes because if we tax away their income they have nothing to spend! Taxes on interest or capital on the other hand won't be a much of a direct problem for the non-thrifty consumers.

Taxes on investment are distortive because they prevent valuable investments from taking place. This is the main argument put forward for lowering the taxes for the super rich in the US. As their income comes from investment lowering their taxes will spur investment. In how far this actually happens and whether the money is actually invested in the US is a different matter.

As a final point: some taxes are actually improving things by preventing economic activity. Environmental taxes like a tax on CO2 should in principle curb CO2 emissions and in that way correct distortions rather than introduce them.


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