Land tax. It is a popular idea among economists.
However, I have heard some people pushing it based on getting land “in use” (this was mentioned at Kiwiblog for example). I am not sure if I agree on this point.
Saying that we should tax land so people use it is similar to saying we should cut benefits to get labour “in use”. Both these arguments involve increasing individual costs to get “activity” going. This isn’t necessarily welfare optimal. Remember the goal of policy is not to increase productivity or to get our GDP number as big as possible, it is to ensure that we have a society where net happiness is as high as possible.
Focusing on getting things “in use” by pushing a cost on private individuals does not ensure that net happiness will be higher, and is definitely a violation of the principal for policy we suggested here that:
Any regulation should be based on the idea of avoiding coercion either from the private or the public sector
Arbitrarily adding costs to get people to arbitrarily do other things is coercion, and I don’t know if I can support the actions of any private or public agents that are based solely on coercion.
I like a land tax as a replacement for other taxes given that the elasticities of supply and demand are low – implying that the “deadweight loss” from taxation will be relatively low. Furthermore, the tax on land is a “fixed cost” of production, implying that the impact on downstream costs should be minimal (depending on how this changes relative land use in the long-run of course).
These reasons are not related to some arbitrary goal of maximising statistics, but instead on the idea that we should be trying to raise any target level of revenue at the lowest possible social cost.