Payroll Taxes: Thresholds, Firm Sizes, Dead-weight Losses and Commonwealth Grants Commission Funding
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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Volume (Year): 80 (2004)
Issue (Month): 250 (09)
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