The government will have to consider the pros and cons of direct taxation, de facto taxation and debt as it negotiates the coronavirus economic crisis.
Notes: Authors’ calculations. Tax data from Sars Tax Statistics . Consumption estimates from IES , where level one includes expenditure on alcohol, restaurants and vacations, as well as 10% of transport; and level five additionally includes expenditure on durables and all transport.
Usually one might be apprehensive about raising taxes during a downturn for fears of stifling aggregate demand. These fears may not apply in full to well-targeted taxation during the Covid-19 lockdown: the lockdown itself imposes the restrictions on non-essential consumption, meaning increased taxation on top-income earners might not generate harmful economic effects on the economy through depressed aggregate consumption.
In short, savings during the lockdown are surely increasing for a subset of the population and it is unclear that we should treat these accumulated savings as pent-up demand waiting to explode the moment lockdown ends. In that light, a just use of these accumulated savings can be to redistribute it to those who need and will use it.
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