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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. Copyright © 2004 Economic Society of Australia..

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  • 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
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    Cited by:

    1. Giesecke, James A. & Madden, John R., 2013. "Regional Computable General Equilibrium Modeling," Handbook of Computable General Equilibrium Modeling, Elsevier.
    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.

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