Inefficient Taxes

Tax systems worldwide face scrutiny as governments seek to raise revenue with minimal economic harm. Economists advocate shifting reliance from inefficient taxes to more efficient ones, creating less "excess burden" (societal costs beyond revenue collected).

A new study models major economies at granular regional levels, simulating welfare changes when adjusting four key taxes: personal income tax, broad consumption taxes, property transfer duties (stamp duties), and insurance levies. Results show property transfer duties and insurance levies remain highly inefficient at any rate. These narrow-based levies discourage mobility (e.g., home downsizing or job relocations) and risk coverage (e.g., lower insurance uptake), making them poor for even modest revenue.

In contrast, personal income tax and consumption taxes efficiency erodes gradually with higher rates but stays superior.

Reforms face hurdles: these levies fund large subnational budgets, risking revenue gaps and fiscal imbalances between spending and taxing authorities. Coordinated hikes in broader taxes demand negotiation. Yet the evidence is clear—some taxes distort excessively at any level. Phasing them out for efficient alternatives boosts long-term growth, with modest changes already helping. Regions like certain territories are pioneering abolition for specific property types, showing feasible paths forward.