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Food Expenditure and GST in New Zealand

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Author Info

  • Christopher Ball
  • John Creedy
  • Michael Ryan

    ()
    (New Zealand Treasury)

Abstract

This paper has two main aims. First, the poor targeting of a policy of zero-rating food in a goods and services tax (GST) is illustrated in a simple model where the revenue lost from zero-rating food is instead devoted to a universal transfer payment, with a larger effect on progressivity. Second, the paper investigates the welfare effects on New Zealand households of zero-rating food. The detailed effects, for a range of household types, are then investigated using Household Economic Survey data. Demand responses to consumer price changes are estimated and welfare changes, in terms of equivalent variations, are obtained. Comparisons are made across ‘clusters’, consisting of groups of households with similar characteristics. The reform is seen to produce a very small amount of progressivity in the GST, with redistribution from richer households without children to poorer households with children, and older households.

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Bibliographic Info

Paper provided by New Zealand Treasury in its series Treasury Working Paper Series with number 14/07.

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Length: 23
Date of creation: Apr 2014
Date of revision:
Handle: RePEc:nzt:nztwps:14/07

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Phone: +64-4-472 2733
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Web page: http://www.treasury.govt.nz
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Keywords: H31; I3; D11;

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References

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  1. John Creedy, 2001. "Indirect tax reform and the role of exemptions," Fiscal Studies, Institute for Fiscal Studies, Institute for Fiscal Studies, vol. 22(4), pages 457-486., December.
  2. 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.
  3. John Creedy, 1998. "Are Consumption Taxes Regressive?," Australian Economic Review, The University of Melbourne, Melbourne Institute of Applied Economic and Social Research, The University of Melbourne, Melbourne Institute of Applied Economic and Social Research, vol. 31(2), pages 107-116.
  4. Creedy, J., 1996. "Measuring the Welfare Effects of Price Changes: A Convenient Parametric Approach," Department of Economics - Working Papers Series, The University of Melbourne 536, The University of Melbourne.
  5. John Creedy, 2002. "The GST and Vertical, Horizontal and Reranking Effects of Indirect Taxation in Australia," Australian Economic Review, The University of Melbourne, Melbourne Institute of Applied Economic and Social Research, The University of Melbourne, Melbourne Institute of Applied Economic and Social Research, vol. 35(4), pages 380-390.
  6. Nicholas Stern, 1990. "Uniformity Versus Selectivity In Indirect Taxation," Economics and Politics, Wiley Blackwell, Wiley Blackwell, vol. 2(1), pages 83-108, 03.
  7. Michael Keen, 2013. "The Anatomy of the VAT," IMF Working Papers, International Monetary Fund 13/111, International Monetary Fund.
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