The dynamic effects of tax

There's been another of the regular calls to abolish stamp duty on share purchases.

The Treasury of course rejected the call, with its usual static, accountant's approach.

"Stamp duty makes an important contribution to the public finances and provision of public services. Any suggestion of abolition without a sensible alternative source of revenue risks either significant cuts in public expenditure or tax increases elsewhere," a spokesman said.

As reported, this ignores the dynamic effects predicted from the abolition.

Oxera found that abolishing stamp duty would cut companies' cost of capital, enabling increased capital expenditure which would boost GDP by up to 0.78 per cent.

This would raise the overall tax take by between £1.27bn and £4.1bn, with the impact "likely to be towards the upper end of this range".

The gains would offset the loss of £2.93bn of tax otherwise raised from stamp duty.

Abolition would also trigger a jump in share prices, Oxera said, adding £146bn to UK equity values and creating a £281m windfall from capital gains tax. Almost all of this uplift would take place even if the government announced only a phased withdrawal of stamp duty, since the market would price in the benefit at once.

The Taxpayers' Alliance has repeatedly stressed the importance of dynamic analysis.