The Built-in Flexibility of Income and Consumption Taxes in New Zealand
AbstractThis paper provides estimates of individual and aggregate revenue elasticities of income and consumption taxes in New Zealand, based on the 2001 tax structure and expenditure patterns. Using analytical expressions for revenue elasticities at the individual and aggregate levels, together with a simulated income distribution, values for New Zealand were obtained. Results using equi-proportional income changes suggest that the aggregate income and consumption tax revenue elasticities are both fairly constant as mean income increases, at around 1.3 and 0.95 respectively. This latter estimate assumes that increases in disposable income are accompanied by approximately proportional increases in total expenditure. If there is a tendency for the savings proportion to increase as disposable income increases, a somewhat lower total consumption tax revenue elasticity, of around 0.9, is obtained for 2001 income levels. However, non-equiproportional income changes are more realistic. Allowing for regression towards the geometric mean income reduces these elasticities, giving an elasticity for income and consumption taxes combined that is only slightly above unity. Examination of the tax-share weighted expenditure elasticities for various goods also revealed that, despite the adoption of a broad based GST at a uniform rate in New Zealand, the persistence of various excises has an important effect on the overall consumption tax revenue elasticity, especially for individuals at relatively low income levels.
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Bibliographic InfoPaper provided by New Zealand Treasury in its series Treasury Working Paper Series with number 03/05.
Length: 22 pages
Date of creation: Mar 2003
Date of revision:
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Tax Revenue; Elasticity; Budget Shares;
Other versions of this item:
- John Creedy & Norman Gemmell, 2004. "The Built-In Flexibility Of Income And Consumption Taxes In New Zealand," Australian Economic Papers, Wiley Blackwell, Wiley Blackwell, vol. 43(4), pages 459-474, December.
- H60 - Public Economics - - National Budget, Deficit, and Debt - - - General
- H71 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Taxation, Subsidies, and Revenue
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- John Creedy & Norman Gemmell, 2003.
"The Revenue Responsiveness of Income and Consumption Taxes in the UK,"
Manchester School, University of Manchester,
University of Manchester, vol. 71(6), pages 641-658, December.
- Creedy, J. & Gemmell, N., 2001. "The Revenue Responsiveness of Income and Consumption Taxes in the UK," Department of Economics - Working Papers Series, The University of Melbourne 814, The University of Melbourne.
- Alex Bakker & John Creedy, 1999. "Macroeconomic variables and income inequality in New Zealand: An exploration using conditional mixture distributions," New Zealand Economic Papers, Taylor & Francis Journals, Taylor & Francis Journals, vol. 33(2), pages 59-79.
- Claude Giorno & Pete Richardson & Deborah Roseveare & Paul van den Noord, 1995. "Estimating Potential Output, Output Gaps and Structural Budget Balances," OECD Economics Department Working Papers, OECD Publishing 152, OECD Publishing.
- John Creedy & Norman Gemmell, 2001. "The Revenue Elasticity of Taxes in the UK," Melbourne Institute Working Paper Series, Melbourne Institute of Applied Economic and Social Research, The University of Melbourne wp2001n11, Melbourne Institute of Applied Economic and Social Research, The University of Melbourne.
- Paul Johnson & Peter Lambert, 1989. "Measuring the responsiveness of income tax revenue to income growth: a review and some UK values," Fiscal Studies, Institute for Fiscal Studies, Institute for Fiscal Studies, vol. 10(4), pages 1-18, November.
- John Creedy & José Félix Sanz?Sanz, 2010. "Modelling Personal Income Taxation in Spain:Revenue Elasticities and Regional Comparisons," Department of Economics - Working Papers Series, The University of Melbourne 1097, The University of Melbourne.
- Christopher Ball & John Creedy & Michael Ryan, 2014. "Food Expenditure and GST in New Zealand," Treasury Working Paper Series, New Zealand Treasury 14/07, New Zealand Treasury.
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