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The elasticity of taxable income in New Zealand: Evidence from the 1986 tax reform

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  • Alastair Thomas

Abstract

This paper uses the 1986 New Zealand tax reform as a ‘natural experiment’ to estimate the elasticity of taxable income for New Zealand. Adopting the methodology of Auten and Carroll (1999), elasticity estimates ranging from 0.34 to 0.52 are obtained. These results imply a significant behavioural response to tax rate changes well in excess of that implied by standard labour supply elasticity estimates, and suggest that the welfare costs of taxation in New Zealand are larger than may have previously been considered.

Suggested Citation

  • Alastair Thomas, 2012. "The elasticity of taxable income in New Zealand: Evidence from the 1986 tax reform," New Zealand Economic Papers, Taylor & Francis Journals, vol. 46(2), pages 159-167, January.
  • Handle: RePEc:taf:nzecpp:v:46:y:2012:i:2:p:159-167
    DOI: 10.1080/00779954.2012.658203
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    Cited by:

    1. Neisser, Carina, 2017. "The elasticity of taxable income: A meta-regression analysis," ZEW Discussion Papers 17-032, ZEW - Leibniz Centre for European Economic Research.
    2. John Creedy & Penny Mok, 2018. "The marginal welfare cost of personal income taxation in New Zealand," New Zealand Economic Papers, Taylor & Francis Journals, vol. 52(3), pages 323-338, September.
    3. John Creedy, 2015. "The elasticity of taxable income, welfare changes and optimal tax rates," New Zealand Economic Papers, Taylor & Francis Journals, vol. 49(3), pages 227-248, August.
    4. Neisser, Carina, 2017. "The elasticity of taxable income: A meta-regression analysis," ZEW Discussion Papers 17-032, ZEW - Leibniz Centre for European Economic Research.

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