Taxation and Redistribution in Australia and the UK - Evidence from Microsimulation Analyses

The last 60 years have seen Australia and the United Kingdom diverge, both socially and economically. This paper considers how the widening social gap between the two countries is reflected by their respective redistributive systems. The analysis is based upon two microsimulation procedures Ñ one static and the other dynamic Ñ both of which are used to consider the probable distributional effects that would arise if elements of the Australian and UK tax and benefits systems were exchanged. The static microsimulation analysis presented suggests that comparisons based purely upon cross-sectional survey data are affected by population heterogeneity, which tend to overstate the redistributive effect of the Australian transfer system in 1997/98 relative to the UK. The dynamic microsimulations are based on a cohort model, and extend the static analysis to consider distributional effects from a working-lifetime perspective. The analysis undertaken suggests that, on balance, the Australian transfer system is more redistributive than the UK system, and reflects a greater concern for social equity. The UK system, in contrast, reflects a greater concern for social insurance.