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Equity and Efficiency Measures of Tax-Transfer Systems: Some Evidence for New Zealand

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  • John Creedy
  • Jamas Enright
  • Norman Gemmell
  • Nick McNabb

    ()
    (The Treasury)

Abstract

The redistributive and efficiency aspects of personal taxes are of particular interest to both economists and governments designing tax reforms. Traditionally however, the numerous analytical tools available to calculate distributional and efficiency effects of taxes and transfers are not widely used in tax policy advice. This partly reflects the computational complexities involved in calculating some of those measures and the need for simplicity, and transparency of underlying assumptions, when presenting policy advice. This paper makes two contributions to the analysis of the equity and efficiency effects of tax policy. Firstly, it applies the methodologies proposed by economists to measure equity and efficiency outcomes of taxes to provide some evidence for the New Zealand income tax and transfer system. This makes use of Treasury’s microsimulation model, TaxWell. Secondly, the paper examines a database of low-income New Zealand taxpayers. A decomposition by individual and household characteristics shows that different groups of low income taxpayers can be affected quite differently by various aspects of the tax/transfer system. In particular, tax-free zones do not appear well targeted to help those most in need.

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File URL: http://www.treasury.govt.nz/publications/research-policy/wp/2008/08-04/twp08-04.pdf
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Bibliographic Info

Paper provided by New Zealand Treasury in its series Treasury Working Paper Series with number 08/04.

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Length: 34
Date of creation: Dec 2008
Date of revision:
Handle: RePEc:nzt:nztwps:08/04

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Keywords: Personal Income Taxes; Equity; Redistribution; Transfers; Tax Efficiency;

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References

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  1. Creedy, J. & van de Ven, J., 2001. "Taxation, Reranking and Equivalence Scales," Department of Economics - Working Papers Series 782, The University of Melbourne.
  2. John Creedy, 2004. "Labour Supply Incentives in Alternative Tax and Transfer Schemes: A Diagrammatic Introduction," Australian Economic Review, The University of Melbourne, Melbourne Institute of Applied Economic and Social Research, vol. 37(2), pages 230-241, 06.
  3. Guyonne Kalb & Rosanna Scutella, 2003. "New Zealand Labour Supply from 1991-2001: An Analysis Based on a Discrete Choice Structural Utility Model," Treasury Working Paper Series 03/23, New Zealand Treasury.
  4. 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, vol. 33(2), pages 59-79.
  5. Kakwani, Nanok C, 1977. "Measurement of Tax Progressivity: An International Comparison," Economic Journal, Royal Economic Society, vol. 87(345), pages 71-80, March.
  6. Alan J. Auerbach, 1982. "The Theory of Excess Burden and Optimal Taxation," NBER Working Papers 1025, National Bureau of Economic Research, Inc.
  7. Dean Hyslop & Dave Maré, 2001. "Understanding Changes in the Distribution of Household Incomes in New Zealand Between 1983-86 and 1995-98," Treasury Working Paper Series 01/21, New Zealand Treasury.
  8. John Creedy & Cath Sleeman, 2005. "Adult equivalence scales, inequality and poverty," New Zealand Economic Papers, Taylor & Francis Journals, vol. 39(1), pages 51-81.
  9. W. Erwin Diewert & Denis A. Lawrence, 1996. "The Deadweight Costs of Taxation in New Zealand," Canadian Journal of Economics, Canadian Economics Association, vol. 29(s1), pages 658-73, April.
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Cited by:
  1. Ivica Urban, 2009. "Kakwani decomposition of redistributive effect: Origins, critics and upgrades," Working Papers 148, ECINEQ, Society for the Study of Economic Inequality.

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