If people cash in before a tax rise then are they rational?

Another little piece of evidence here. There is that claim over on the idiot left that not just neoliberalism but the whole of neoclassical economics is bunk because of the assumption of rationality among the people. As we’ve said before the assumption of irrationality looks dodgy to us - if choices are such then whither democracy and even who could we get to be our - irrational - dictator?

So we need evidence:

Savers have pulled more than £18bn from their pensions in a race to protect their money from Rachel Reeves’ inheritance tax raid, official figures show.

Hunh.

It came after the Chancellor announced in her maiden Budget that pensions would be subject to inheritance tax from 2027. The announcement led to many retirees withdrawing from their pots in order to give money to their families and reduce their tax bills.

The rational response to a change in taxation is to change one’s financial arrangements. Taxes seem about to change, people are changing their arrangements. At very worst we’ve not got evidence of irrationality here now, have we?

We can extend this to a more general principle too. If people are not rational then a change in taxation would not lead to a change in behaviour. So, those insisting upon irrationality must also be insisting upon no changes in behaviour given changes in tax. Anyone actually want to make that claim? In the face of, you know, all the evidence?

Tim Worstall