The proposed VAT imposition on private schools in the UK poses challenges for schools, children’s, and the jobs their parents do. Parents who take their children out of private school may decide to work fewer hours, retire early, or leave the labour force altogether. This doesn’t just mean that many of these higher earners will pay less in tax. They’ll also be reducing their economic output, making businesses less productive, and which in turn will pay less business tax and VAT. This will be a drag on growth for years to come.
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Table of Contents
- Executive Summary 3
- Studies on financial windfalls lottery winners and inheritance recipients indicate labour withdrawals of 11 to 59 which is consistent with the well-documented backward-bending labour supply curve. 3
- Introduction 4
- Recap Short Term Thinking 6
- Other Contributors 8
- Theoretical Basis 8
- The backwards-bending supply curve of labour 8
- Subjective and hidden valuations 10
- Wealth Effects 11
- Transfer to state school as a wealth effect 11
- Empirical Basis 13
- Gifts and bequests 13
- Lottery Winners 14
- What we observe 15
- Analysis 18
- Second-order effects 18
- Third-order effects 19
- Future cohorts 21
- Conclusion 22
- Appendix 1 Demand-side calculations from our previous paper Short-Term Thinking 23
- Appendix 2 fiscal impact of labour supply withdrawal in various scenarios 23
- Appendix 3 employment mulitiplier and payroll taxation 24
- Appendix 4 revised summary of overall fiscal impact from Short Term Thinking 25
