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Understanding the economy-wide efficiency and incidence of major Australian taxes

Author

Listed:
  • Liangyue Cao

    (Treasury, Government of Australia)

  • Amanda Hosking

    (Treasury, Government of Australia)

  • Michael Kouparitsas

    (Treasury, Government of Australia)

  • Damian Mullaly

    (Treasury, Government of Australia)

  • Xavier Rimmer

    (Treasury, Government of Australia)

  • Qun Shi

    (Treasury, Government of Australia)

  • Wallace Stark

    (Treasury, Government of Australia)

  • Sebastian Wende

    (Treasury, Government of Australia)

Abstract

In recent years, a series of studies have been undertaken in Australia that use static general equilibrium models with a representative household to compare the relative efficiency of different Australian taxes. This paper aims to complement these earlier studies and contribute to a broader discussion about the structure of Australia’s tax system by estimating the welfare cost and identifying the economic incidence of marginal changes to the tax system. Our estimates of the additional welfare cost of a marginal tax change (that is, the marginal excess burden) of major Australian taxes largely align with estimates reported in earlier Australian studies. Consistent with earlier studies, stamp duty on conveyances and the company income tax are the least efficient taxes (that is, they have relatively high marginal excess burdens), while the most efficient tax is a hypothetical broad-based land tax. We test the sensitivity of the ranking of the efficiency of major Australian taxes to a range of assumptions about economic agents and the structure of the Australian economy and find that the relative marginal excess burden of major Australian taxes is robust to a wide range of model parameters. Finally, we show that the incidence of major taxes is largely borne by workers through lower real wages caused by lower labour productivity.

Suggested Citation

  • Liangyue Cao & Amanda Hosking & Michael Kouparitsas & Damian Mullaly & Xavier Rimmer & Qun Shi & Wallace Stark & Sebastian Wende, 2015. "Understanding the economy-wide efficiency and incidence of major Australian taxes," Treasury Working Papers 2015-01, The Treasury, Australian Government, revised Apr 2015.
  • Handle: RePEc:tsy:wpaper:wpaper_tsy_wp_2015_1
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    Citations

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    Cited by:

    1. John Freebairn, 2018. "Opportunities and Challenges for CGE Models in Analysing Taxation," Economic Papers, The Economic Society of Australia, vol. 37(1), pages 17-29, March.
    2. Jotzo, Frank & Mazouz, Salim, 2015. "Brown coal exit: A market mechanism for regulated closure of highly emissions intensive power stations," Economic Analysis and Policy, Elsevier, vol. 48(C), pages 71-81.
    3. Chung Tran & Sebastian Wende, 2017. "On the Marginal Excess Burden of Taxation in an Overlapping Generations Model," ANU Working Papers in Economics and Econometrics 2017-652, Australian National University, College of Business and Economics, School of Economics.
    4. Chris Murphy, 2016. "The effects on consumer welfare of a corporate tax cut," Departmental Working Papers 2016-10, The Australian National University, Arndt-Corden Department of Economics.
    5. Fogarty, James J. & Sagerer, Simon, 2016. "Exploration externalities and government subsidies: The return to government," Resources Policy, Elsevier, vol. 47(C), pages 78-86.
    6. Infrastructure Victoria, 2016. "Value Capture - Options, Challenges and Opportunities for Victoria," Policy papers 201601, Infrastructure Victoria.
    7. Verikios, George & Patron, Jodie & Gharibnavaz, Reza, 2017. "Decomposing the Marginal Excess Burden of Australia’s Goods and Services Tax," MPRA Paper 77850, University Library of Munich, Germany.
    8. Jack Mintz, 2018. "Global Implications of U.S. Tax Reform," ifo Schnelldienst, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 71(07), pages 22-35, April.
    9. Kalkuhl, Matthias & Fernandez Milan, Blanca & Schwerhoff, Gregor & Jakob, Michael & Hahnen, Maren & Creutzig, Felix, 2017. "Fiscal Instruments for Sustainable Development: The Case of Land Taxes," MPRA Paper 78652, University Library of Munich, Germany.
    10. Philip Bazel & Jack Mintz & Austin Thompson, 2018. "2017 Tax Competitiveness Report: The Calm Before the Storm," SPP Research Papers, The School of Public Policy, University of Calgary, vol. 11(7), February.
    11. Fogarty, James & Polyakov, Maksym & Iftekhar, MD Sayed, 2017. "Equitable and Efficient systems of water utility charges in the face of a changing water supply mix," Working Papers 264780, University of Western Australia, School of Agricultural and Resource Economics.
    12. John Freebairn, 2020. "Reform State Taxes to Increase Productivity," Australian Economic Review, The University of Melbourne, Melbourne Institute of Applied Economic and Social Research, vol. 53(4), pages 577-585, December.
    13. Jason Nassios & John Madden & James Giesecke & Janine Dixon & Nhi Tran & Peter Dixon & Maureen Rimmer & Philip Adams & John Freebairn, 2019. "The economic impact and efficiency of state and federal taxes in Australia," Centre of Policy Studies/IMPACT Centre Working Papers g-289, Victoria University, Centre of Policy Studies/IMPACT Centre.
    14. Peter Abelson, 2018. "An Analysis of Value Capture Instruments," Economic Papers, The Economic Society of Australia, vol. 37(4), pages 399-411, December.
    15. John Freebairn, 2016. "A Comparison of Policy Instruments to Reduce Greenhouse Gas Emissions," Economic Papers, The Economic Society of Australia, vol. 35(3), pages 204-215, September.
    16. Michael Kouparitsas & Dinar Prihardini & Alexander Beames, 2016. "Analysis of the long term effects of a company tax cut," Treasury Working Papers 2016-02, The Treasury, Australian Government, revised May 2016.
    17. John Freebairn, 2018. "Effective Tax Rates on Different Corporate Investments," Department of Economics - Working Papers Series 2039, The University of Melbourne.

    More about this item

    Keywords

    marginal excess burden; economic incidence; tax revenue;
    All these keywords.

    JEL classification:

    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • H22 - Public Economics - - Taxation, Subsidies, and Revenue - - - Incidence
    • H30 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - General

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