Policy Brief

Imagine a government cuts taxes on everyday purchases to encourage people to spend more, but has to make up the lost money somewhere else. The choice it makes next can mean the difference between a thriving economy and a shrinking one.

This brief describes findings from a study that used data from China to compare two ways governments can replace that lost revenue: raising taxes on income, or raising taxes on land.

The authors find that raising income taxes shrinks the economy substantially, while raising land taxes instead protects growth, and can even help the economy grow.