Is it possible that a country's tax-to-GDP ratio reaches 100% or more, let's say with a land value tax. And what would it imply? That all incomes would be spent on paying taxes?
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Yes it is possible by taxing wealth such as land.
Only thing that it implies is that amount of tax is larger than yearly gross output of the nation.
It does not mean all incomes are spent paying tax since tax can be paid out of pre-existing wealth that is not part of GDP.
People do not just consume whole income they have. They save and invest. If you accumulate saving over time, saving itself can be larger than your income. This also allows tax revenue to be potentially larger than GDP if government levies wealth taxes.
answered Jan 13, 2023 at 11:35
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1$\begingroup$ GDP is usually measured in a 1 year period but it doesn't have to be. If you measure it in a period of 1 day, then you can see that a lumpy tax might exceed income in the period. The question was "what would it imply" where "it" is understood to mean "big taxes of some sort" and this example illustrates that it implies nothing because lumpy taxes are the status quo. If law is changed to make all tax continuous, the total of all taxes would be less than continuous income because if it were not, then household net worth would be continually declining which is politically infeasible. $\endgroup$– H2ONaClCommented Jan 17, 2023 at 9:33
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1$\begingroup$ for tax-to-GDP ratio the tax receipts and GDP have to be measured over the same time interval $\endgroup$– 1muflon1 ♦Commented Jan 17, 2023 at 9:49
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$\begingroup$ Great answers folks, thanks a lot. $\endgroup$ Commented Jan 19, 2023 at 6:12
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You could tax more than GDP with any kind of taxes on assets, including land value tax. A traditional Georgist land value tax could not do this however, because such a tax is advocated at the rate of 100% of the rental value of the land, no more. At such a rate, the tax would definitely not be higher than the GDP.
However, if the tax was set so high that it was more than the GDP, there would be two effects:
A mass exodus would almost surely happen. Land would certainly have a negative value if the tax was this high. All undeveloped land would be abandoned, and there would be an enormous incentive to abandon all but the most developed of land. People would be forced to move to cities to avoid taxes. More people would leave the country to avoid these oppressive taxes.
The people left in the country would be paying a sum equal to more than their incomes (on average at least) as taxes. They would be forced to live on their saved wealth.
Such a situation would be very unsustainable. Eventually people's wealth would run out and people would not be able to survive. A revolt would be basically inevitable.
