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Reforming the Australian Tax Transfer System

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  • Patricia Apps

Abstract

The tax policy agenda in Australia for more than a decade has been largely driven by a perceived need to reduce the level of income taxation and the progression of marginal rates, financing the revenue shortfall with a broad based consumption tax. A major reform of this kind is now being implemented under the Howard plan for “a new tax system”. Recent debate has turned to the possibility of an Earned Income Tax Credit scheme as a solution to the problem of an emerging class of working poor resulting from ongoing labour market reforms. This paper subjects these policy reforms to a detailed theoretical and empirical analysis. The findings suggest that the reforms are seriously limited in terms of their distributional outcomes, particularly in the context of growing wage inequality in the labour market. The analysis also shows that the reforms are unlikely to improve the efficiency and growth of the economy due to disincentive effects on labour supply and saving behaviour.

Suggested Citation

  • Patricia Apps, 1999. "Reforming the Australian Tax Transfer System," CEPR Discussion Papers 413, Centre for Economic Policy Research, Research School of Economics, Australian National University.
    • Handle: RePEc:auu:dpaper:413
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    File URL: https://www.cbe.anu.edu.au/researchpapers/CEPR/DP413.pdf
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    References listed on IDEAS

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    1. Richard Blundell & Alan Duncan & Julian McCrae & Costas Meghir, 2000. "The labour market impact of the working families’ tax credit," Fiscal Studies, Institute for Fiscal Studies, vol. 21(1), pages 75-103, March.
    2. Boskin, Michael J. & Sheshinski, Eytan, 1983. "Optimal tax treatment of the family: Married couples," Journal of Public Economics, Elsevier, vol. 20(3), pages 281-297, April.
    3. N. Eissa & H. W. Hoynes, "undated". "The Earned Income Tax Credit and the Labor Supply of Married Couples," Institute for Research on Poverty Discussion Papers 1194-99, University of Wisconsin Institute for Research on Poverty.
    4. Apps, Patricia & Savage, Elizabeth, 1989. "Labour supply, welfare rankings and the measurement of inequality," Journal of Public Economics, Elsevier, vol. 39(3), pages 335-364, August.
    5. Apps, P. F. & Rees, R., 1996. "Labour supply, household production and intra-family welfare distribution," Journal of Public Economics, Elsevier, vol. 60(2), pages 199-219, May.
    6. Heckman, James J, 1993. "What Has Been Learned about Labor Supply in the Past Twenty Years?," American Economic Review, American Economic Association, vol. 83(2), pages 116-121, May.
    7. Martin Feldstein & James M. Poterba, 1996. "Empirical Foundations of Household Taxation," NBER Books, National Bureau of Economic Research, Inc, number feld96-1.
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    More about this item

    Keywords

    TAX POLICY;

    JEL classification:

    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • H22 - Public Economics - - Taxation, Subsidies, and Revenue - - - Incidence
    • H71 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Taxation, Subsidies, and Revenue

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