3.2.4.3 The Impact of Tax on People’s Behaviour

(The latest version of this page is at Pattern Descriptions. An archived copy of this page is held at https://www.patternsofpower.org/edition02/3243.htm)

Politicians can use taxation to change people’s behaviour:

· Selective taxation on some goods is a way of discouraging people from buying them. This has been part of many governments’ strategies in reducing smoking, for example.

· Taxes on imports, tariffs, are a way of discouraging people from buying them. Tariffs are often used as a form of protectionism, as discussed later in this chapter (3.5.4.2).

· As discussed later (3.5.7.2), a carbon tax is one promising strategy for encouraging a reduction in the emission of greenhouse gases.

· A tax based on property values discourages property improvement. With a tax based on land values, owners would have an incentive to improve properties and put the land to its most profitable use – perhaps building houses for example – rather than leaving the land unused and waiting for it to appreciate in value.

In addition to these specific aspects of behaviour, there is an overall impact of tax wherever it is levied: an increase in tax reduces disposable income, thereby reducing the amount of money that people have available – whether as consumers, or to save, or to invest in the financial system.