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Tuesday, September 03, 2013:

A classical view of ‘fiscal devaluation’

“Fiscal devaluation redistributes the impact of taxation between factors of production so as to reduce the damage. If we tax the value of labour, there will be less labour. If we tax the value of (produced) capital, there will be less capital. But if we tax the value of land, there will not be less land. (For present purposes we may take land to mean not only ‘location, location’, but all assets that taxpayers cannot create or destroy or move, including government-granted privileges.) Thus the tax system will be most conducive to production if it targets only the value of land. Cutting payroll tax, which targets only the value of labour, is a step in that direction. A VAT, which targets the price of consumption, is indifferent to whether that price is received as, or paid by, the return to labour, capital or land. This indifference, though not as good as targeting land alone, is better than targeting labour alone.”

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Read the full article “Fiscal devaluation on steroids” at MacroBusiness.

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