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Taxes and benefits

Our work analyses impacts on inequality, poverty, the public finances, and the behaviour of workers, firms and consumers, and considers how their design could be improved. Its focus ranges from the taxation of sugary drinks to revenue-raising measures in low and middle income countries to ongoing UK benefit reforms.

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Where next for tax and spend?

Comment

Following seven years of spending cuts following the financial crisis and associated record deficit, there is a growing call for the government to “end austerity”. Yet current plans imply more spending cuts as the government looks to reduce the deficit further. This observation – and an associated joint event with the Institute for Government – reflects on what ending austerity might mean in the context of the scale and shape of the planned fiscal tightening.

12 July 2017

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Redistribution, efficiency and the design of VAT: a review of the theory and literature

Report

The simplest form of value added tax (VAT) – and the form often advocated by international organisations – is one with a broad base and a single (‘uniform’) rate. In practise, most countries exempt and/or apply lower VAT rates on certain categories of goods and services. In this note authors summarise the pros and cons of such ‘VAT rate differentiation’ that are highlighted in the economics and taxation literatures, paying particular attention to the applicability and relevance of each factor for low- and middle-income countries.

10 July 2017

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Response to government consultation on business rate retention

Report

This is a response by David Phillips, an Associate Director at the Institute for Fiscal Studies (IFS), to the government consultation “100% business rates retention: further consultation on the design of the reformed system”. The views and opinions expressed here are those of the author only. The IFS has no corporate views.

16 June 2017

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Proposed changes to alcohol taxation are small beer

Comment

The government has recently consulted on the structure of alcohol taxes. This consultation focuses on two issues: (i) the introduction of a new still cider and perry band that would increase the tax on products below 7.5% ABV, and (ii) the introduction of a new still wine band that would reduce the tax on products between 5.5% and 8.5% ABV. In this Observation we summarise our main points from our response to the consultation.

15 June 2017

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Tax avoidance and optimal income tax enforcement

Working Paper

We examine the optimal auditing problem of a tax authority when taxpayers can choose both to evade and avoid. For a convex penalty function the incentive-compatibility constraints may bind for the richest taxpayer and at a positive level of both evasion and avoidance. The audit function is non-increasing in reported income, and is higher for progressive tax functions than for regressive tax functions. Higher marginal tax rates increase the incentives for non-compliance, overturning the well-known Yitzhaki paradox.

7 June 2017

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Labour’s proposed income tax rises for high-income individuals

Report

IFS Election 2017 analysis is being produced with funding from the Nuffield Foundation as part of its work to ensure public debate in the run-up to the general election is informed by independent and rigorous evidence. For more information, go to http://www.nuffieldfoundation.org

16 May 2017

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Labour’s reversal of corporate tax cuts would raise substantial sums but comes with important trade-offs

Comment

Today, the Labour party will announce that they would not implement planned corporation tax cuts and would reverse most of the cuts introduced since 2010. This would be the first time the main rate of the modern corporation tax in the UK had been increased. The policy could raise around £19 billion in the near term, but substantially less in the medium to long run because companies would respond by investing less in the UK.

10 May 2017

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What’s been happening to corporation tax?

Report

This briefing note provides background material for the 2017 General Election. IFS Election 2017 analysis is being produced with funding from the Nuffield Foundation as part of its work to ensure public debate in the run-up to the general election is informed by independent and rigorous evidence. For more information, go to http://www.nuffieldfoundation.org.

10 May 2017

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Optimal taxation in occupational choice models: an application to the work decisions of couples

Working Paper

We study a general model of occupational choice and optimal income taxation where agents have private cost of work that di ffer across occupations and have both deterministic and random components. We apply our framework to study the work decisions of couples in an extensive set up and give necessary and sufficient conditions under which joint-working households should be subsidized compared to single-worker households.

4 May 2017

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Scotland’s income tax schedule to differ from rest of the UK for first time

Comment

From tomorrow, Scottish residents will for the first time be subject to a different income tax schedule from those resident elsewhere in the UK. This is because of the Scottish parliament’s decision to use recently devolved powers over income tax bands and rates for non-savings and non-dividend income to freeze the higher-rate threshold (the point at which the rate of income tax rises from 20% to 40%) for the new financial year. Doing so exacerbates some existing deficiencies that afflict the tax system throughout the UK, and highlights the continuing need for tax reform.

5 April 2017