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Equity and Efficiency Measures of Tax-Transfer Systems: Some Evidence for New Zealand

Publication Details

  • Equity and Efficiency Measures of Tax-Transfer Systems: Some Evidence for New Zealand
  • Published: 19 Dec 2008
  • Status: Current
  • Authors: Creedy, John; Gemmell, Norman; McNabb, Nick; Enright, Jamas
  • Responsible units: Tax Strategy
  • Copyright: © Crown Copyright
  • JEL Classification: H23; H24
  • Hard copy: Not available in hard copy.
 

Equity and Efficiency Measures of Tax-Transfer Systems: Some Evidence for New Zealand

New Zealand Treasury Working Paper 08/04

Published 19 Dec 2008

Authors: John Creedy, Jamas Enright, Norman Gemmell and Nick McNabb

Abstract

The redistributive and efficiency aspects of personal taxes are of particular interest to both economists and governments designing tax reforms. Traditionally, however, the numerous analytical tools available to calculate distributional and efficiency effects of taxes and transfers are not widely used in tax policy advice. This partly reflects the computational complexities involved in calculating some of those measures and the need for simplicity, and transparency of underlying assumptions, when presenting policy advice. This paper makes two contributions to the analysis of the equity and efficiency effects of tax policy. Firstly, it applies the methodologies proposed by economists to measure equity and efficiency outcomes of taxes to provide some evidence for the New Zealand income tax and transfer system. This makes use of Treasury's microsimulation model, TaxWell. Secondly, the paper examines a database of low-income New Zealand taxpayers. A decomposition by individual and household characteristics shows that different groups of low income taxpayers can be affected quite differently by various aspects of the tax/transfer system. In particular, tax-free zones do not appear to be well targeted to help those most in need.

Contents

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Introduction

The Evaluation of Tax Reforms

Taxes, Redistribution and Efficiency

Income Inequality and Fiscal Redistribution in New Zealand

Effective Marginal Tax Rates

The Composition of Low Income Taxpayers

Conclusions

Appendix: Adult-Equivalence Scales

References

twp08-04.pdf (264 KB) pp.34

List of Tables

List of Figures

Acknowledgements

The research in this paper builds on earlier work with Matthew Bell, Steve Cantwell, Malcolm McKee and David Snell.

Disclaimer

The views, opinions, findings, and conclusions or recommendations expressed in this Working Paper are strictly those of the author(s).

Working papers are published to contribute to the body of economic knowledge, and to inform and stimulate wider public debate. As such, this Working Paper does not necessarily reflect the views of the New Zealand Treasury or the New Zealand Government, and should not be reported as such. Furthermore, the paper does not constitute government policy or policy advice to government, and should not be considered as such.

The Treasury takes no responsibility for any errors or omissions in, or for the correctness of, the information contained in this Working Paper.

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