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Food Expenditure and GST in New Zealand

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Abstract

This paper has two main aims. First, the poor targeting of a policy of zero-rating food in a goods and services tax (GST) is illustrated in a simple model where the revenue lost from zero-rating food is instead devoted to a universal transfer payment, with a larger effect on progressivity. Second, the paper investigates the welfare effects on New Zealand households of zero-rating food. The detailed effects, for a range of household types, are then investigated using Household Economic Survey data. Demand responses to consumer price changes are estimated and welfare changes, in terms of equivalent variations, are obtained. Comparisons are made across ‘clusters’, consisting of groups of households with similar characteristics. The reform is seen to produce a very small amount of progressivity in the GST, with redistribution from richer households without children to poorer households with children, and older households.

Suggested Citation

  • Christopher Ball & John Creedy & Michael Ryan, 2014. "Food Expenditure and GST in New Zealand," Treasury Working Paper Series 14/07, New Zealand Treasury.
  • Handle: RePEc:nzt:nztwps:14/07
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    File URL: http://www.treasury.govt.nz/publications/research-policy/wp/2014/14-07/twp14-07.pdf
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    References listed on IDEAS

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    1. Michael Keen, 2013. "The Anatomy of the Vat," National Tax Journal, National Tax Association;National Tax Journal, vol. 66(2), pages 423-446, June.
    2. John Creedy, 2001. "Indirect tax reform and the role of exemptions," Fiscal Studies, Institute for Fiscal Studies, vol. 22(4), pages 457-486., December.
    3. John Creedy, 1998. "Are Consumption Taxes Regressive?," Australian Economic Review, The University of Melbourne, Melbourne Institute of Applied Economic and Social Research, vol. 31(2), pages 107-116.
    4. Creedy, John, 1998. "Measuring the Welfare Effects of Price Changes: A Convenient Parametric Approach," Australian Economic Papers, Wiley Blackwell, vol. 37(2), pages 137-151, June.
    5. John Creedy & Norman Gemmell, 2004. "The Built-In Flexibility Of Income And Consumption Taxes In New Zealand," Australian Economic Papers, Wiley Blackwell, vol. 43(4), pages 459-474, December.
    6. John Creedy, 2002. "The GST and Vertical, Horizontal and Reranking Effects of Indirect Taxation in Australia," Australian Economic Review, The University of Melbourne, Melbourne Institute of Applied Economic and Social Research, vol. 35(4), pages 380-390.
    7. Nicholas Stern, 1990. "Uniformity Versus Selectivity In Indirect Taxation," Economics and Politics, Wiley Blackwell, vol. 2(1), pages 83-108, March.
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    Cited by:

    1. Thomas, Alastair, 2015. "The Distributional Effects of Consumption Taxes in New Zealand," Working Paper Series 4668, Victoria University of Wellington, Chair in Public Finance.

    More about this item

    JEL classification:

    • H31 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Household
    • I3 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty
    • D11 - Microeconomics - - Household Behavior - - - Consumer Economics: Theory

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