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Media StatementTreasury Releases March Working Papers

26 March 2004

The Treasury today released four working papers in the March instalment of its Working Papers series.

This quarter's set of papers includes:

A full list of the abstracts from the four papers follows.

The papers can all be found at []

The Treasury Working Papers series contains work in progress on a variety of economic and financial issues. The series aims to help to increase understanding of Treasury and its work, and to make this work available to a larger audience. The working papers build internal capability, as well as generating more informed debate on key issues. The series has been running since 1998.

The views expressed in the Working Papers are those of the authors and do not necessarily reflect the views of the New Zealand Treasury. The papers are presented not as policy, but with a view to inform and stimulate wider debate.


04/01 The Effects on New Zealand Households of an Increase in the Petrol Excise Tax 
John Creedy (Treasury)

This paper reports estimates of the potential welfare effects of hypothetical increases in the petrol excise tax in New Zealand. Equivalent variations, for a range of household types and total expenditure levels, are obtained along with distributional measures. Household demand responses are modelled using the Linear Expenditure System, where parameters vary by total expenditure level and household type. The effects on inequality were founds to be negligible, but the marginal excess burdens typically ranged between 35 and 55 cents per dollar of additional revenue.

04/02 Theories of the Family and Policy
Veronica Jacobsen, Lindy Fursman, John Bryant, Megan Claridge and Benedikte Jensen (Treasury)

Policy interventions that affect or are mediated through the family typically assume a behavioural response. Policy analyses proceeding from different disciplinary bases may come to quite different conclusions about the effects of policies on families, depending how individuals within families behave. This paper identifies the implications of five theories of family and individual behaviour for the likely success of policy intervention. Anthropology documents not only the universality of the family, but also its many forms. Economic theory illustrates the capacity for well-intentioned policy to be thwarted by individual rationality. Evolutionary biology suggests that a number of fundamental drivers of behaviour are genetic predispositions and can be difficult to influence through policy. Sociology emphasises the role of social norms but recognises that individualism limits the influence of society generally on individual behaviour. Understanding the theories of the family emanating from different disciplines can enrich policy analysis by identifying how and why behaviour can be influenced. It also can serve to remind researchers of the resilience of the family and the limits of government intervention.

04/03 Youth Minimum Wage Reform and the Labour Market
Dean Hyslop (Treasury) and Steven Stillman (Labour Market Policy Group)

This paper analyses the effects of a large reform in the minimum wages affecting youth workers in New Zealand since 2001. Prior to this reform, a youth minimum wage, applying to 16-19 year-olds, was set at 60% of the adult minimum. The reform had two components. First, it lowered the eligible age for the adult minimum wage from 20 to 18 years, and resulted in a 69 percent increase in the minimum wage for 18 and 19 year-olds. Second, the reform raised the youth minimum wage in two annual steps from 60% to 80% of the adult minimum, and resulted in a 41 percent increase in the minimum wage for 16 and 17 year-olds over a two-year period. We use data from the New Zealand Household Labour Force Survey (HLFS) to estimate the impact of these changes on a variety of labour market and related outcomes. We compare the average outcomes of these two groups of teenagers, before and after the policy reform, to those of 20-25 year-olds, who were unaffected by the reform. We find no robust evidence of adverse effects on youth employment or hours worked. In fact, we find stronger evidence of positive employment responses to the changes for both groups of teenagers, and that 16-17 year-olds increased their hours worked by 10-15 percent following the minimum wage changes. Given the absence of any adverse employment effects, we find significant increases in labour earnings and total income of teenagers relative to young adults. However, we do find some evidence of a decline in educational enrolment, and an increase in unemployment and inactivity, although these results depend on the specification adopted.

04/04 Healthy, wealthy and wise? A review of the wider benefits of education
Grant Johnston (Treasury)

This paper reviews evidence that a greater education causes better outcomes in life, over and above the effects of having a higher-paying job. Comparatively little has been written which draws together evidence on the wider (that is, wider than just earnings-related) benefits of education, although studies which ignore these benefits might considerably underestimate the total return from an additional year of education or an additional qualification. Research suggests that increased education, as measured by the time people spend in formal education or the qualifications they attain, may cause a reduction in cigarette smoking, anxiety disorders, anti-social disorders, suicide, crime, teenage pregnancies, unemployment and reliance on welfare benefits, at least when these outcomes are measured in young adulthood. Education may also have an effect on people's health. The wider benefits of education are difficult to quantify, however, and the degree of uncertainty around them is considerable. Policy-makers would be unwise to rely too heavily on the existence of wider benefits when making decisions about public investment in education.

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