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3.3  Non-Filer Incomes

A major omission from NZOYB income data is the income of individuals who were not required to file tax returns, prior to the introduction of PAYE in 1958. Non-filers were generally those with incomes below the low-income ‘general exemption' threshold since those with incomes above this level were legally required to file a return. Appendix 4 describes the methods we use to estimate the income of non-filers. While omission of these non-filers with a zero EMTR would not be a problem for calculations of a tax-share weighted estimate of the aggregate AMTR, it is potentially important for an income-weighted average. Ignoring non-filers would risk over-estimating the AMTR.

In brief, our method of estimating non-filers' income involves using census data for 1926, 1936, 1945 and 1951 and labour market data to derive estimates of total personal incomes which can be compared with our NZOYB data on filers' total personal incomes. One option would be to interpolate between census years using the ratio of filer-to-all personal incomes. This ratio reveals an increasing trend, rising from 0.347 (for 1926) to 0.707 (1936), 0.919 (1945) and 0.963 (1951).

However, evidence from Barro and Sahasakul (1983) suggests that, while this ratio tends to trend up over time in association with rising income levels, it can be especially low during short-run recessionary periods. Within our dataset, this includes the 1920s-30s depression when large falls in personal incomes reduced the numbers of those required to file. Data on GNP are available throughout our period of interest, and this could be expected to capture recessionary impacts.

We therefore estimate the ratio of total personal income, Y, to GNP in Census years (subscripted ‘c'), Yc,/GNPc, and use interpolated (subscripted ‘i') values of this ratio, and annual GNP values, to estimate values of Yi for non-Census years. Together with our estimates for total income of filers, Y(F)i, for those years we can estimate non-filers incomes, Y(N), in non-Census years as Y(N)i = Yi - Y(F)i. The resulting time-series for the ratio of filers-to-total income, and the decomposition of total income into filer/non-filer categories, are shown in Appendix 4, Figures A3 and A4 respectively. These suggest a plausible but fluctuating fall in the extent of non-filers' incomes, reaching less than 4% of total personal incomes by 1951.

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