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Indirect tax reform and the role of exemptions

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  • John Creedy

Abstract

This paper examines the question of whether indirect tax rates should be uniform, using four different modelling strategies. First, marginal tax reform is examined. This is concerned with the optimal direction of small changes in effective indirect tax rates and requires considerably less information than the calculation of optimal rates. Second, the welfare effects of a partial shift from the current indirect tax system in Australia towards a goods and services tax (GST) are considered, with particular emphasis on differences between household types and the role of exemptions. Third, in view of the stress on a distributional role for exemptions of certain goods from a GST, the potential limits to such redistribution are considered. The fourth approach examines the extent of horizontal inequity and reranking that can arise when there are non-uniform tax rates. These inequities arise essentially because of preference heterogeneity.

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Bibliographic Info

Article provided by Institute for Fiscal Studies in its journal Fiscal Studies.

Volume (Year): 22 (2001)
Issue (Month): 4 (December)
Pages: 457-486.

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Handle: RePEc:ifs:fistud:v:22:y:2001:i:4:p:457-486.

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References

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  1. Kakwani, Nanok C, 1977. "Measurement of Tax Progressivity: An International Comparison," Economic Journal, Royal Economic Society, vol. 87(345), pages 71-80, March.
  2. Creedy, J., 1998. "Differential Consumption Taxes and Equity: The Limits to Redistribution," Department of Economics - Working Papers Series 648, The University of Melbourne.
  3. James Banks & Richard Blundell & Arthur Lewbel, 1994. "Tax reform and welfare measurement: do we need demand system estimation?," IFS Working Papers W94/11, Institute for Fiscal Studies.
  4. Ahmad, Ehtisham & Stern, Nicholas, 1984. "The theory of reform and indian indirect taxes," Journal of Public Economics, Elsevier, vol. 25(3), pages 259-298, December.
  5. Creedy, John, 1998. "Measuring the Welfare Effects of Price Changes: A Convenient Parametric Approach," Australian Economic Papers, Wiley Blackwell, vol. 37(2), pages 137-51, June.
  6. King, Mervyn A., 1983. "Welfare analysis of tax reforms using household data," Journal of Public Economics, Elsevier, vol. 21(2), pages 183-214, July.
  7. Blackorby, Charles & Donaldson, David, 1988. "Money metric utility: A harmless normalization?," Journal of Economic Theory, Elsevier, vol. 46(1), pages 120-129, October.
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Cited by:
  1. Jouko Kinnunen & Saara Tamminen & Mira Jussila, 2012. "The estimation of LES demand elasticities for CGE models," Working Papers 39, Government Institute for Economic Research Finland (VATT).
  2. John Creedy, 2009. "The Personal Income Tax Structure: Theory and Policy," Department of Economics - Working Papers Series 1063, The University of Melbourne.
  3. Georgia Kaplanoglou, 2004. "Household Consumption Patterns, Indirect Tax Structures and Implications for Indirect Tax Harmonisation - A Three Country Perspective," The Economic and Social Review, Economic and Social Studies, vol. 35(1), pages 83-107.
  4. Jason Loughrey & Cathal O’Donoghue, 2012. "The Welfare Impact of Price Changes on Household Welfare and Inequality 1999-2011," The Economic and Social Review, Economic and Social Studies, vol. 43(1), pages 31–66.
  5. Christopher Ball & John Creedy & Michael Ryan, 2014. "Food Expenditure and GST in New Zealand," Treasury Working Paper Series 14/07, New Zealand Treasury.
  6. Alessandro Santoro, 2007. "Marginal Commodity Tax Reforms: A Survey," Journal of Economic Surveys, Wiley Blackwell, vol. 21(4), pages 827-848, 09.
  7. José Sánchez Maldonado & Salvador Gómez Sala, 2006. "The Reform of Indirect Taxation in Spain: VAT and Excise," International Center for Public Policy Working Paper Series, at AYSPS, GSU paper0607, International Center for Public Policy, Andrew Young School of Policy Studies, Georgia State University.
  8. Essama-Nssah, B., 2008. "Assessing the redistributive effect of fiscal policy," Policy Research Working Paper Series 4592, The World Bank.

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