Stamp duty on houses increases the unemployment rate

Transactions taxes are a bad idea - that’s a central finding of basic thought about taxes. We get less of whatever we tax, of course we do. Sadly, we also need to have taxes to fund even the most minarchist state (we are not anarcho-capitalists around here). So, tax the things which are least damaging to tax. In order, the value of unimproved land, consumption, incomes, possibly capital incomes and then far out at that wildly silly end, transactions. After all, why would we think that it profits a society to have fewer voluntary transactions going on?

So, this planted story that Rachel is thinking of doing something about stamp duty on houses has merit. For that transactions tax increases the unemployment rate. The logic - and the empirical proof - are simple enough. Economic geography changes over time as do peoples’ lives and desires. Therefore people need to be mobile in order to do best by themselves. We never were going to put the oil industry in Coventry, the container port in Birmingham or the LNG terminals in Wolverhampton. People need to be mobile.

The original research showed that the lack of a rental sector increased unemployment - the costs of selling then buying a house made labour less mobile. No, council housing does not solve this as the ability to move across a local authority boundary is even more restricted - it’s possible but can take years.

So, why tax the transaction of buying and or selling a house? We’re just limiting labour mobility and thus driving up the unemployment rate and why would we want to do that?

So, moving this taxation from the transaction - the bad thing to tax - to the value of the property - a less bad thing to tax - has merit. We should therefore do it, obviously. This is one of those free lunches that do not exist, we reduce the damage from bad taxation and remove that shooting ourselves in the foot from the economy.

So, you know, Bonzer and all that.

There is still that rather more than just a batsqueak of worry though. We’d lay dollars to donuts that this will all be an additional tax not a replacement. But then we’re realists around here.

Tim Worstall