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Payroll Taxes: Thresholds, Firm Sizes, Dead‐weight Losses and Commonwealth Grants Commission Funding

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  • PETER B. DIXON
  • MARK R. PICTON
  • MAUREEN T. RIMMER

Abstract

Payroll‐tax thresholds make firms smaller than they would otherwise be and concentrate firms at just below threshold employment. We estimate the resulting dead‐weight losses under perfect and monopolistic competition. Under monopolistic competition, the threshold‐induced dead‐weight loss in Victoria is approximately 10 per cent of payroll‐tax collections over a wide range of threshold levels. Because payroll‐tax design affects the size distribution of firms, it also affects the Commonwealth Grants Commission's assessment of a State's capacity to generate payroll taxes. This violates a principle of the Commonwealth Grants Commission that its grant to a State be independent of the State's policies.

Suggested Citation

  • Peter B. Dixon & Mark R. Picton & Maureen T. Rimmer, 2004. "Payroll Taxes: Thresholds, Firm Sizes, Dead‐weight Losses and Commonwealth Grants Commission Funding," The Economic Record, The Economic Society of Australia, vol. 80(250), pages 289-301, September.
    • Handle: RePEc:bla:ecorec:v:80:y:2004:i:250:p:289-301
    DOI: 10.1111/j.1475-4932.2004.00189.x
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    References listed on IDEAS

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    1. Kaludura Abayasiri-Silva & Mark Horridge, 1998. "Economies of Scale and Imperfect Competition in an Applied General Equilibrium Model of the Australian Economy," Palgrave Macmillan Books, in: Kenneth J. Arrow & Yew-Kwang Ng & Xiaokai Yang (ed.), Increasing Returns and Economic Analysis, chapter 14, pages 307-334, Palgrave Macmillan.
    2. Chapman, R. & Vincent, D., 1987. "Payroll Taxes in Australia, Part II: An Economy-Wide Approach to Estimating the Effects of their Removal," Economic Analysis and Policy, Elsevier, vol. 17(2), pages 149-177.
    3. Fuss, Melvyn A. & Gupta, Vinod K., 1981. "A cost function approach to the estimation of minimum efficient scale, returns to scale, and suboptimal capacity : With an application to Canadian manufacturing," European Economic Review, Elsevier, vol. 15(2), pages 123-135.
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    Cited by:

    1. John Freebairn, 2018. "Opportunities and Challenges for CGE Models in Analysing Taxation," Economic Papers, The Economic Society of Australia, vol. 37(1), pages 17-29, March.
    2. Onji, Kazuki, 2009. "The response of firms to eligibility thresholds: Evidence from the Japanese value-added tax," Journal of Public Economics, Elsevier, vol. 93(5-6), pages 766-775, June.
    3. Jason Nassios & John Madden & James Giesecke & Janine Dixon & Nhi Tran & Peter Dixon & Maureen Rimmer & Philip Adams & John Freebairn, 2019. "The economic impact and efficiency of state and federal taxes in Australia," Centre of Policy Studies/IMPACT Centre Working Papers g-289, Victoria University, Centre of Policy Studies/IMPACT Centre.
    4. Giesecke, James A. & Madden, John R., 2013. "Regional Computable General Equilibrium Modeling," Handbook of Computable General Equilibrium Modeling, in: Peter B. Dixon & Dale Jorgenson (ed.), Handbook of Computable General Equilibrium Modeling, edition 1, volume 1, chapter 0, pages 379-475, Elsevier.
    5. Marx, Benjamin M., 2018. "The Cost of Requiring Charities to Report Financial Information," MPRA Paper 88660, University Library of Munich, Germany.
    6. Janine M. Dixon & Jason Nassios, 2018. "A Dynamic Economy-wide Analysis of Company Tax Cuts in Australia," Centre of Policy Studies/IMPACT Centre Working Papers g-287, Victoria University, Centre of Policy Studies/IMPACT Centre.

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