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The Elasticity of Taxable Income in New Zealand

  • Claus, Iris
  • Creedy, John
  • Teng, Josh

This paper reports estimates of the elasticity of taxable income with respect to the net-of-tax rate for New Zealand taxpayers. The relative stability of the New Zealand personal income tax system, in terms of marginal rates, thresholds and the tax base, provides helpful conditions for deriving these estimates. The elasticity of taxable income was estimated to be substantially higher for the highest income groups. Changes in the timing of income flows for the higher income recipients were found to be an important response to the announcement of a new higher-rate bracket. The marginal welfare costs of personal income taxation were consistent across years, being relatively small for all but the higher tax brackets. For the top marginal rate bracket of 39 per cent, the welfare cost of raising an extra dollar of tax revenue was estimated to be well in excess of a dollar.

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File URL: http://researcharchive.vuw.ac.nz/handle/10063/2427
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Paper provided by Victoria University of Wellington, Chair in Public Finance in its series Working Paper Series with number 2427.

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Date of creation: 2012
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Handle: RePEc:vuw:vuwcpf:2427
Contact details of provider: Postal: School of Accounting & Commercial Law, Victoria University of Wellington, PO Box 600, Wellington, New Zealand
Phone: +64 (4) 463 5775
Fax: +64 (4) 463 5076
Web page: http://www.victoria.ac.nz/sacl/about/chair-in-public-finance
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  1. John Creedy & Nicolas Hérault & Guyonne Kalb, 2011. "Measuring welfare changes in behavioural microsimulation modelling: Accounting for the random utility component," Journal of Applied Economics, Universidad del CEMA, vol. 0, pages 5-34, May.
  2. Emmanuel Saez & Joel Slemrod & Seth H. Giertz, 2012. "The Elasticity of Taxable Income with Respect to Marginal Tax Rates: A Critical Review," Journal of Economic Literature, American Economic Association, vol. 50(1), pages 3-50, March.
  3. J. Barkley Rosser, 2009. "Introduction," Chapters, in: Handbook of Research on Complexity, chapter 1 Edward Elgar.
  4. Martin Feldstein, 1993. "The Effect of Marginal Tax Rates on Taxable Income: A Panel Study of the1986 Tax Reform Act," NBER Working Papers 4496, National Bureau of Economic Research, Inc.
  5. John Creedy & Nicolas Hérault & Guyonne Kalb, 2007. "Comparing Welfare Change Measures with Income Change Measures in Behavioural Policy Simulations," Melbourne Institute Working Paper Series wp2007n21, Melbourne Institute of Applied Economic and Social Research, The University of Melbourne.
  6. Lewis Evans & Arthur Grimes & Bryce Wilkinson, 1996. "Economic Reform in New Zealand 1984-95: The Pursuit of Efficiency," Journal of Economic Literature, American Economic Association, vol. 34(4), pages 1856-1902, December.
  7. Lindsey, Lawrence B., 1987. "Individual taxpayer response to tax cuts: 1982-1984 : With implications for the revenue maximizing tax rate," Journal of Public Economics, Elsevier, vol. 33(2), pages 173-206, July.
  8. A. B. Atkinson & Andrew Leigh, 2008. "Top Incomes In New Zealand 1921-2005: Understanding The Effects Of Marginal Tax Rates, Migration Threat, And The Macroeconomy," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 54(2), pages 149-165, 06.
  9. Giertz, Seth, 2004. "Recent Literature on Taxable-Income Elasticities," MPRA Paper 16159, University Library of Munich, Germany.
  10. Feldstein, Martin, 1995. "Effect of Marginal Tax Rates on Taxable Income: A Panel Study of the 1986 Tax Reform Act," Scholarly Articles 2766676, Harvard University Department of Economics.
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