Property taxes

Taxes on land and buildings may be expected to have relatively little effect upon decisions to supply labour, to invest in human capital, and to produce, invest and innovate; and recent empirical evidence has confirmed that they are comparatively favourable to economic growth^[29]. They also have the merit of being cheap to collect and hard to evade. However, taxes on housing, in particular, tend to be unpopular because of their visibility and their effect upon low-income householders; and in some countries there have even been proposals for their replacement by income tax. A tax on gains arising from increases in the unimproved value of land (as recommended in the UK by the "Barker Review of Housing Supply"^[30]) should not raise such objections, and, by discouraging the practice of holding land out of use for speculative purposes, it could release land for housing and help to stabilise the housing market.

In contrast, taxes on financial and capital transactions tend to reduce productivity and growth. It has been demonstrated that taxes on intermediate transactions are inefficient because the same revenue can better be obtained by taxing income or consumption^[31]. The harm that they cause arises from the fact that they discourage transactions that would improve the allocation of resources. For example, capital gains taxes tend to discourage migration to areas where labour is in greater demand by discouraging the buying and selling of houses^[32]