The Geographical Impacts of a Local Income Tax in the United Kingdom

Abstract

In this paper, some of the first-round impacts on UK local government budgets which would result from the hypothetical replacement of domestic Rates by a local income tax (LIT) are explored. This switch increases the tax base and reduces its per capita spread between areas. Variation in LIT products is found to be influenced more by the representation of different case-types in an area, and hence centrally determined national income tax policy, than by local wage levels per se. With other items held constant, replacement tax rates vary from 0.8% to 5.9%. Stimulus to fiscal migration occurs in only a few places, but is significant for those areas involved.