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Family Taxation: An Unfair and Inefficient System

Author

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  • Patricia Apps

    (University of Sydney, RSSS - ANU)

Abstract

This paper presents an analysis of the 2005-06 family tax system comprising the personal income tax, the Medicare Levy, Family Tax Benefits Parts A and B and tax offsets. The results show that most families are now taxed, in effect, on the basis of joint income. Through a succession of reforms the Howard Government has shifted the tax burden to two-earner families to such an extent that many now pay close to the same amount of tax as a family in which only one parent need work to earn the same income while the other works full time at home. This is a defining feature of joint taxation. The study also finds that families face a marginal rate schedule that is no longer progressive but tends to have an inverted U-shaped profile – working families in the middle of the distribution face the highest marginal rates. As a consequence, the incomes of second earners in low and average wage families are taxed effectively at the highest average rates in the economy. The study explains why the system is unfair and seriously damaging for the economy in its effects on female labour supply in an ageing population. On the basis of the results, the paper argues for a return to a progressive individual income tax system, to improve support for families and to raise female participation and productivity.

Suggested Citation

  • Patricia Apps, 2006. "Family Taxation: An Unfair and Inefficient System," CEPR Discussion Papers 524, Centre for Economic Policy Research, Research School of Economics, Australian National University.
  • Handle: RePEc:auu:dpaper:524
    as

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    File URL: https://www.cbe.anu.edu.au/researchpapers/cepr/DP524.pdf
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    References listed on IDEAS

    as
    1. Patricia Apps, 2002. "Why an Earned income tax credit program is a mistake for Australia," Australian Journal of Labour Economics (AJLE), Bankwest Curtin Economics Centre (BCEC), Curtin Business School, vol. 5(4), pages 549-568, December.
    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. Apps, Patricia, 1991. "Tax Reform, Population Ageing and the Changing Labour Supply Behaviour of Married Women," Journal of Population Economics, Springer;European Society for Population Economics, vol. 4(3), pages 201-216, August.
    4. Kathryn Shaw, 1994. "The Persistence of Female Labor Supply: Empirical Evidence and Implications," Journal of Human Resources, University of Wisconsin Press, vol. 29(2), pages 348-378.
    5. Patricia F. Apps & Ray Rees, 1999. "Individual versus Joint Taxation in Models with Household Production," Journal of Political Economy, University of Chicago Press, vol. 107(2), pages 393-403, April.
    6. Apps, Patricia & Rees, Ray, 1999. "On the taxation of trade within and between households," Journal of Public Economics, Elsevier, vol. 73(2), pages 241-263, August.
    7. Shelly J. Lundberg & Robert A. Pollak & Terence J. Wales, 1997. "Do Husbands and Wives Pool Their Resources? Evidence from the United Kingdom Child Benefit," Journal of Human Resources, University of Wisconsin Press, vol. 32(3), pages 463-480.
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    Cited by:

    1. Hans Bloemen & Elena Stancanelli, 2007. "Modelling the employment and wage outcomes of spouses: is she outearning him?," Post-Print hal-01053593, HAL.
    2. Elena Stancanelli, 2007. "Marriage and Work: an analysis for French couples in the last decade," Documents de Travail de l'OFCE 2007-10, Observatoire Francais des Conjonctures Economiques (OFCE).

    More about this item

    Keywords

    Income taxation; labour supply; household;

    JEL classification:

    • H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies
    • H31 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Household
    • J22 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Time Allocation and Labor Supply

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